UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-7992
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MFS SERIES TRUST XI
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(Exact name of registrant as specified in charter)
500 Boylston Street, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
Stephen E. Cavan
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
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(Name and address of agents for service)
Registrant's telephone number, including area code: (617) 954-5000
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Date of fiscal year end: September 30, 2003
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Date of reporting period: September 30, 2003
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ITEM 1. REPORTS TO STOCKHOLDERS.
MFS(R) Mutual Funds
ANNUAL REPORT 9/30/03
MFS(R) Union Standard
Equity Fund
A path for pursuing opportunity
[MFS Logo](R)
INVESTMENT MANAGEMENT
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MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
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Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
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NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
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MFS(R) UNION STANDARD EQUITY FUND
The fund seeks to provide long-term growth of capital.
TABLE OF CONTENTS
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MFS PRIVACY POLICY
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LETTER FROM THE CHAIRMAN 1
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MFS ORIGINAL RESEARCH(R) 4
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MANAGEMENT REVIEW 5
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PERFORMANCE SUMMARY 7
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PORTFOLIO OF INVESTMENTS 10
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FINANCIAL STATEMENTS 15
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NOTES TO FINANCIAL STATEMENTS 23
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INDEPENDENT AUDITORS' REPORT 29
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TRUSTEES AND OFFICERS 30
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MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS 32
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FEDERAL TAX INFORMATION 33
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CONTACT INFORMATION 34
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ASSET ALLOCATION 35
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LETTER FROM THE CHAIRMAN
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Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
October 21, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
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MFS ORIGINAL RESEARCH(R)
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THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
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MANAGEMENT REVIEW
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MARKET ENVIRONMENT
The start of the period was marked by a continuation of a three-year-long bear
market that plagued investors around the world. Over the last several months
of the period, however, domestic and international stock markets began to
rebound and post strong gains. Investors seemed encouraged by improving
corporate fundamentals, better earnings reports, and a belief that the global
economy was staged for recovery.
DETRACTORS FROM PERFORMANCE
The primary detractors from performance were the fund's holdings in the
industrial goods & services and technology sectors.
Among industrial goods & services stocks, aerospace companies such as Lockheed
Martin contributed the most to the underperformance of the portfolio. The
aerospace industry suffered from uncertainty early in 2003 as investor
psychology was heavily influenced by the run-up to the war in Iraq and most of
the volatility in this industry occurred in that period. Since then, aerospace
stocks have shown stronger performance and we continue to believe that some
companies in this sector may offer reasonable valuations for long-term
investors.
In the technology sector, the portfolio posted strong real returns, but an
underweight position compared with the fund's benchmark (Standard and Poor's
500 Stock Index) led to relative underperformance. We historically have an
underweight position in technology because of the portfolio's focus on the
stocks of unionized companies. The portfolio also has tended to avoid stocks
that we feel are overly expensive, and the market rebound over the latter half
of the period created an environment of overvaluation for many technology
stocks.
CONTRIBUTORS TO PERFORMANCE
Energy, basic materials, and miscellaneous stocks were the biggest
contributors to the positive performance of the portfolio.
In the energy sector, the portfolio benefited most from its positions in Baker
Hughes, an oil and natural gas drilling company, and global oil producer
ChevronTexaco. Despite high oil and gas commodity prices, these stocks had
been depressed early in the period as the situation in Iraq unfolded, but they
have recovered over the period. By the end of the period Baker Hughes had been
sold out of the portfolio.
Among basic materials stocks, Alcoa and 3M were the main contributors to
performance. Alcoa, one of the world's top aluminum companies, became
attractive to investors as they began to anticipate improvements in the global
economy and wanted to be invested in leading commodity firms most likely to
benefit. This led to a steady rise in Alcoa stock. Diversified products firm
3M, meanwhile, benefitted from increased sales volume and from the decline in
the U.S. dollar. Among miscellaneous stocks, software- consulting firm
Accenture performed well as companies accelerated the outsourcing of
information technology operations.
/s/ Lisa B. Nurme /s/ James M. Perkins
Lisa B. Nurme James M. Perkins
Portfolio Manager Portfolio Manager
The opinions expressed in this report are those of the portfolio managers and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
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PERFORMANCE SUMMARY THROUGH 9/30/03
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The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmarks. Performance results
reflect the percentage change in net asset value, including the reinvestment
of any dividends and capital gains distributions. Benchmark comparisons are
unmanaged and do not reflect any fees or expenses. The performance of other
share classes will be less than the line shown, based on differences in sales
charges and Rule 12b-1 fees paid by shareholders investing in different
classes. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. (See Notes to
Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
January 14, 1994, through September 30, 2003. Index information is from
January 2, 1994.)
MFS Union
Standard Standard &
Equity Fund - Poor's 500
Class I Stock Index
1/94 $10,000 $10,000
9/95 11,973 13,144
9/97 19,192 22,208
9/99 23,133 30,950
9/01 16,689 25,732
9/03 16,074 25,453
TOTAL RETURNS
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Average annual
without sales charge
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Class
Share class inception date 1-yr 3-yr 5-yr Life*
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A 8/07/1997 17.66% -9.43% -6.27% 4.76%
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B 8/11/1997 16.92% -10.02% -6.88% 4.36%
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C 8/11/1997 16.98% -10.01% -6.87% 4.37%
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I 1/14/1994 18.22% -9.11% -5.94% 5.01%
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Comparative Benchmarks
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Average annual
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Average large-cap core fund+ 20.86% -12.31% -0.01% 7.78%
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Standard & Poor's 500 Stock Index# 24.38% -10.13% 1.00% 10.06%
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Average annual
with sales charge
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Share class 1-yr 3-yr 5-yr Life*
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A 10.89% -11.20% -7.38% 4.12%
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B 12.92% -10.93% -7.18% 4.36%
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C 15.98% -10.01% -6.87% 4.37%
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I class shares do not have a sales charge. Please see Notes to Performance
Summary for more details.
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Cumulative without
sales charge
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A 17.66% -25.70% -27.66% 57.02%
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B 16.92% -27.15% -30.00% 51.35%
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C 16.98% -27.12% -29.94% 51.53%
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I 18.22% -24.92% -26.37% 60.74%
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* For the period from the commencement of the fund's investment operations,
January 14, 1994, through September 30, 2003. Index information is from
January 2, 1994.
+ Source: Lipper Inc., an independent firm that reports mutual fund performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
STANDARD & POOR'S 500 STOCK INDEX - a commonly used measure of the broad U.S.
stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A results, including sales charge, reflects the deduction of the maximum
5.75% sales charge. Class B results, including sales charge, reflects the
deduction of the applicable contingent deferred sales charge (CDSC), which
declines over six years from 4% to 0%. Class C results, including sales
charge, redeemed within one year from the end of the calendar month of
purchase reflects the deduction of the 1% CDSC. Class I shares have no sales
charges and are available only to certain investors.
Performance for share classes offered after Class I shares includes the
performance of the fund's Class I shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). The use of blended performance generally results in
higher performance than these share classes would have experienced had they
been offered for the entire period.
All performance results reflect any applicable expense subsidies and waivers
in effect during the periods shown; without these, the results would have been
less favorable. See the prospectus and financial statements for details. All
results are historical and assume the reinvestment of dividends and
capital gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
By concentrating primarily on labor sensitive companies, the portfolio is more
susceptible to adverse economic, political or regulatory developments
affecting those companies than is a portfolio that invests more broadly.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
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PORTFOLIO OF INVESTMENTS - 9/30/03
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The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 96.3%
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ISSUER SHARES $ VALUE
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U.S. Stocks - 95.1%
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Aerospace - 4.6%
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Alliant Techsystems, Inc.* 4,700 $225,835
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Boeing Co. 10,200 350,166
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General Dynamics Corp. 5,100 398,106
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L-3 Communications Holding, Inc.* 6,240 269,880
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Lockheed Martin Corp. 8,350 385,353
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$1,629,340
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Alcoholic Beverages - 1.4%
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Anheuser-Busch Cos., Inc. 9,660 $476,624
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Apparel Manufacturers - 1.0%
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Liz Claiborne, Inc. 10,380 $353,439
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Automotive - 2.2%
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American Axle & Manufacturing Holdings, Inc.* 9,010 $266,516
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Lear Corp.* 5,630 296,363
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SPX Corp.* 4,790 216,891
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$779,770
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Banks & Credit Companies - 11.4%
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Bank of America Corp. 10,030 $782,741
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Citigroup, Inc. 16,830 765,933
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Fannie Mae 8,370 587,574
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FleetBoston Financial Corp. 15,320 461,898
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Freddie Mac 2,100 109,935
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J. P. Morgan Chase & Co. 10,000 343,300
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Wachovia Corp. 12,100 498,399
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Washington Mutual, Inc. 11,650 458,661
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$4,008,441
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Biotechnology - 1.1%
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Genzyme Corp.* 8,300 $383,875
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Broadcast & Cable TV - 2.5%
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AOL Time Warner, Inc.* 21,270 $321,390
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Comcast Corp., "A"* 18,453 569,828
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$891,218
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Brokerage & Asset Managers - 2.5%
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Goldman Sachs Group, Inc. 3,770 $316,303
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Merrill Lynch & Co., Inc. 8,410 450,187
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Morgan Stanley Dean Witter & Co. 2,100 105,966
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$872,456
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Business Services - 1.1%
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First Data Corp. 6,860 $274,126
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VeriSign, Inc.* 8,900 119,883
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$394,009
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Chemicals - 2.2%
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3M Co. 6,540 $451,718
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Dow Chemical Co. 9,500 309,130
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$760,848
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Computer Software - 4.6%
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Microsoft Corp. 39,220 $1,089,924
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Oracle Corp.* 45,510 510,622
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$1,600,546
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Computer Software - Systems - 1.3%
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International Business Machines Corp. 5,040 $445,183
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Consumer Goods & Services - 3.3%
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Kimberly-Clark Corp. 7,340 $376,689
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Procter & Gamble Co. 8,380 777,831
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$1,154,520
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Containers - 1.2%
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Owens Illinois, Inc.* 21,640 $247,129
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Sealed Air Corp.* 4,000 188,920
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$436,049
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Electrical Equipment - 3.9%
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General Electric Co. 45,270 $1,349,499
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Electronics - 4.1%
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Analog Devices, Inc.* 7,200 $273,744
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Intel Corp. 26,700 734,517
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PerkinElmer, Inc. 28,200 431,742
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$1,440,003
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Energy - Independent - 2.5%
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Ashland, Inc. 7,180 $235,863
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Marathon Oil Corp. 14,510 413,535
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Premcor, Inc.* 9,800 227,066
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$876,464
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Energy - Integrated - 4.6%
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ChevronTexaco Corp. 3,700 $264,365
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ConocoPhillips 2,000 109,500
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ExxonMobil Corp. 33,632 1,230,931
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$1,604,796
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Entertainment - 1.6%
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Viacom, Inc., "B" 14,247 $545,660
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Food & Drug Stores - 2.9%
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CVS Corp. 13,140 $408,129
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Kroger Co.* 18,130 323,983
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Walgreen Co. 8,910 273,002
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$1,005,114
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Food & Non Alcoholic Beverages - 2.2%
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Coca-Cola Enterprises, Inc. 11,680 $222,621
- -----------------------------------------------------------------------------------------------------
Dean Foods Co.* 7,950 246,688
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Kellogg Co. 2,450 81,708
- -----------------------------------------------------------------------------------------------------
Sara Lee Corp. 12,500 229,500
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$780,517
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General Merchandise - 1.8%
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Costco Wholesale Corp.* 9,700 $301,476
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Federated Department Stores, Inc. 7,600 318,440
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$619,916
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Insurance - 3.6%
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Loews Corp. 7,690 $310,446
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MetLife, Inc. 14,300 401,115
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St. Paul Cos., Inc. 9,400 348,082
- -----------------------------------------------------------------------------------------------------
UnumProvident Corp. 12,630 186,545
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$1,246,188
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Internet - 1.2%
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Ebay, Inc.* 7,800 $417,378
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Machinery & Tools - 0.3%
- -----------------------------------------------------------------------------------------------------
Deere & Co. 1,900 $101,289
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 0.1%
- -----------------------------------------------------------------------------------------------------
Medco Health Solutions, Inc.* 1,554 $40,295
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 1.7%
- -----------------------------------------------------------------------------------------------------
Apogent Technologies, Inc.* 12,600 $262,836
- -----------------------------------------------------------------------------------------------------
Waters Corp.* 2,800 76,804
- -----------------------------------------------------------------------------------------------------
Zimmer Holdings, Inc.* 4,800 264,480
- -----------------------------------------------------------------------------------------------------
$604,120
- -----------------------------------------------------------------------------------------------------
Metals & Mining - 1.3%
- -----------------------------------------------------------------------------------------------------
Alcoa, Inc. 17,130 $448,121
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 8.4%
- -----------------------------------------------------------------------------------------------------
Barr Laboratories, Inc.* 4,000 $272,840
- -----------------------------------------------------------------------------------------------------
Eli Lilly & Co. 5,330 316,602
- -----------------------------------------------------------------------------------------------------
Eon Labs, Inc.* 2,500 95,875
- -----------------------------------------------------------------------------------------------------
Johnson & Johnson Co. 15,210 753,199
- -----------------------------------------------------------------------------------------------------
Merck & Co., Inc. 12,890 652,492
- -----------------------------------------------------------------------------------------------------
Pfizer, Inc. 16,762 509,230
- -----------------------------------------------------------------------------------------------------
Wyeth 7,160 330,076
- -----------------------------------------------------------------------------------------------------
$2,930,314
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 0.9%
- -----------------------------------------------------------------------------------------------------
Tribune Co. 7,230 $331,857
- -----------------------------------------------------------------------------------------------------
Railroad & Shipping - 2.7%
- -----------------------------------------------------------------------------------------------------
Burlington Northern Santa Fe Railway Co. 12,880 $371,846
- -----------------------------------------------------------------------------------------------------
CSX Corp. 11,030 322,627
- -----------------------------------------------------------------------------------------------------
Norfolk Southern Corp. 14,320 264,920
- -----------------------------------------------------------------------------------------------------
$959,393
- -----------------------------------------------------------------------------------------------------
Restaurants - 0.9%
- -----------------------------------------------------------------------------------------------------
Yum! Brands, Inc.* 10,630 $314,861
- -----------------------------------------------------------------------------------------------------
Telecommunications - Wireline - 1.2%
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc.* 20,760 $405,650
- -----------------------------------------------------------------------------------------------------
Telephone Services - 4.0%
- -----------------------------------------------------------------------------------------------------
BellSouth Corp. 19,900 $471,232
- -----------------------------------------------------------------------------------------------------
SBC Communications, Inc. 15,950 354,887
- -----------------------------------------------------------------------------------------------------
Verizon Communications, Inc. 18,240 591,706
- -----------------------------------------------------------------------------------------------------
$1,417,825
- -----------------------------------------------------------------------------------------------------
Tobacco - 2.0%
- -----------------------------------------------------------------------------------------------------
Altria Group, Inc. 15,680 $686,784
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 2.8%
- -----------------------------------------------------------------------------------------------------
Edison International* 10,200 $194,820
- -----------------------------------------------------------------------------------------------------
PPL Corp. 8,720 357,084
- -----------------------------------------------------------------------------------------------------
TXU Corp. 18,000 424,080
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$975,984
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $33,288,346
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 1.2%
- -----------------------------------------------------------------------------------------------------
Bermuda - 1.2%
- -----------------------------------------------------------------------------------------------------
Accenture Ltd., "A" (Business Services)* 14,370 $321,026
- -----------------------------------------------------------------------------------------------------
Cooper Industries, Ltd., "A" (Electrical Equipment) 2,020 97,020
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $418,046
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $30,432,299) $33,706,392
- -----------------------------------------------------------------------------------------------------
Repurchase Agreement - 3.5%
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PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Merrill Lynch & Co., Inc., dated 09/30/03, due 10/01/03,
total to be received $1,225,036 (secured by U.S. Treasury
and Federal Agency obligations in a jointly traded
account), at Cost $1,225 $1,225,000
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $31,657,299) $34,931,392
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 0.2% 59,598
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $34,990,990
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
See notes to financial statements.
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FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 9/30/03
ASSETS
Investments, at value (identified cost, $31,657,299) $34,931,392
- -----------------------------------------------------------------------------------------------------
Cash 874
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 16,954
- -----------------------------------------------------------------------------------------------------
Interest and dividends receivable 51,256
- -----------------------------------------------------------------------------------------------------
Other assets 507
- -----------------------------------------------------------------------------------------------------
Total assets $35,000,983
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payable for fund shares reacquired $8,924
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 641
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 293
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 135
- -----------------------------------------------------------------------------------------------------
Total liabilities $9,993
- -----------------------------------------------------------------------------------------------------
Net assets $34,990,990
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $47,088,987
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments 3,274,093
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (15,642,103)
- -----------------------------------------------------------------------------------------------------
Accumulated undistributed net investment income 270,013
- -----------------------------------------------------------------------------------------------------
Total $34,990,990
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 3,672,178
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $6,633,780
- -----------------------------------------------------------------------------------------------------
Shares outstanding 698,909
- -----------------------------------------------------------------------------------------------------
Net asset value per share $9.49
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$9.49) $10.07
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $2,082,451
- -----------------------------------------------------------------------------------------------------
Shares outstanding 223,194
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.33
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $465,986
- -----------------------------------------------------------------------------------------------------
Shares outstanding 50,089
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $9.30
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $25,808,773
- -----------------------------------------------------------------------------------------------------
Shares outstanding 2,699,986
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $9.56
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred
sales charge may be imposed on redemptions of Class A, Class B, and Class C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 9/30/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $618,990
- -----------------------------------------------------------------------------------------------------
Interest 15,305
- -----------------------------------------------------------------------------------------------------
Total investment income $634,295
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $224,299
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 1,543
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 36,171
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 21,827
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 21,866
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 5,462
- -----------------------------------------------------------------------------------------------------
Administrative fee 3,164
- -----------------------------------------------------------------------------------------------------
Custodian fee 18,156
- -----------------------------------------------------------------------------------------------------
Printing 25,337
- -----------------------------------------------------------------------------------------------------
Postage 2,631
- -----------------------------------------------------------------------------------------------------
Auditing fees 33,296
- -----------------------------------------------------------------------------------------------------
Legal fees 1,410
- -----------------------------------------------------------------------------------------------------
Registration fees 52,517
- -----------------------------------------------------------------------------------------------------
Miscellaneous 24,621
- -----------------------------------------------------------------------------------------------------
Total expenses $472,300
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (555)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (107,511)
- -----------------------------------------------------------------------------------------------------
Net expenses $364,234
- -----------------------------------------------------------------------------------------------------
Net investment income $270,061
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized loss (identified cost basis) on investment
transactions $(4,343,307)
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments 9,796,514
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments $5,453,207
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $5,723,268
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 9/30 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income $270,061 $251,493
- -----------------------------------------------------------------------------------------------------
Net realized loss on investments (4,343,307) (4,875,461)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments 9,796,514 (3,708,373)
- -------------------------------------------------------------- ----------- -----------
Increase (decrease) in net assets from operations $5,723,268 $(8,332,341)
- -------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -----------------------------------------------------------------------------------------------------
Class A $(19,271) $(22,129)
- -----------------------------------------------------------------------------------------------------
Class I (232,132) (229,916)
- -------------------------------------------------------------- ----------- -----------
Total distributions declared to shareholders $(251,403) $(252,045)
- -------------------------------------------------------------- ----------- -----------
Net decrease in net assets from fund share
transactions $(7,241,503) $(6,555,252)
- -------------------------------------------------------------- ----------- -----------
Total decrease in net assets $(1,769,638) $(15,139,638)
- -------------------------------------------------------------- ----------- -----------
NET ASSETS
At beginning of period $36,760,628 $51,900,266
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated undistributed net
investment income of $270,013 and $251,355, respectively) $34,990,990 $36,760,628
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past 5 years.
Certain information reflects financial results for a single fund share. The total returns in the table represent the rate
by which an investor would have earned (or lost) on an investment in the fund (assuming reinvestment of all
distributions). This information has been audited by the fund's independent auditors, whose report, together with the
fund's financial statements, are included in this report.
FOR YEARS ENDED 9/30
CLASS A 2003 2002 2001 2000 1999
Net asset value, beginning of period $8.09 $9.98 $12.91 $16.33 $16.85
- -------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.05 $0.03 $0.02 $0.07 $0.10
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.38 (1.90) (2.88) (1.12) 0.88
- ------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations $1.43 $(1.87) $(2.86) $(1.05) $0.98
- ------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.03) $(0.02) $(0.07) $(0.09) $(0.12)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (2.26) (1.38)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.02) --
- ------------------------------------------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.03) $(0.02) $(0.07) $(2.37) $(1.50)
- ------------------------------------------ ------ ------ ------ ------ ------
Net asset value, end of period $9.49 $8.09 $9.98 $12.91 $16.33
- ------------------------------------------ ------ ------ ------ ------ ------
Total return (%)(++) 17.66* (18.76) (22.27) (7.77) 5.56
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.26 1.20 1.22 1.22 1.21
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.57 0.30 0.18 0.48 0.56
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 48 69 86 58
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $6,634 $5,872 $9,493 $10,066 $13,361
- --------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not
greater than 0.20% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment income (loss) per share and the ratios would have been:
Net investment income (loss) $0.02 $0.01 $(0.01) $0.05 $0.08
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.57 1.44 1.47 1.36 1.30
- --------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.26 0.06 (0.07) 0.34 0.47
- --------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(++) Total returns for Class A shares do not include the applicable sales charge. If the charge had been included, the
results would have been lower.
* The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded
as a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net
asset value per share, the total return for the year ended September 30, 2003 would have been 16.93%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 9/30
CLASS B 2003 2002 2001 2000 1999
Net asset value, beginning of period $7.98 $9.89 $12.82 $16.23 $16.81
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.03) $(0.05) $(0.02) $(0.02)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.36 (1.88) (2.87) (1.11) 0.88
- ------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations $1.35 $(1.91) $(2.92) $(1.13) $0.86
- ------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $(0.01) $-- $(0.06)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (2.26) (1.38)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.02) --
- ------------------------------------------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $(0.01) $(2.28) $(1.44)
- ------------------------------------------ ------ ------ ------ ------ ------
Net asset value, end of period $9.33 $7.98 $9.89 $12.82 $16.23
- ------------------------------------------ ------ ------ ------ ------ ------
Total return (%) 16.92* (19.31) (22.77) (8.37) 4.86
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.90 1.85 1.87 1.87 1.86
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.08) (0.34) (0.46) (0.14) (0.10)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 48 69 86 58
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $2,082 $2,534 $3,211 $2,356 $3,448
- --------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not
greater than 0.20% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.06) $(0.08) $(0.04) $(0.04)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.21 2.09 2.12 2.01 1.95
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.39) (0.58) (0.71) (0.28) (0.19)
- --------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
* The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as
a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset
value per share, the total return for the year ended September 30, 2003 would have been 16.18%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 9/30
CLASS C 2003 2002 2001 2000 1999
Net asset value, beginning of period $7.95 $9.85 $12.76 $16.21 $16.80
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.01) $(0.03) $(0.05) $(0.02) $(0.02)
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.36 (1.87) (2.86) (1.11) 0.88
- ------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations $1.35 $(1.90) $(2.91) $(1.13) $0.86
- ------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $-- $-- $(0.04) $(0.07)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (2.26) (1.38)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.02) --
- ------------------------------------------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $-- $-- $-- $(2.32) $(1.45)
- ------------------------------------------ ------ ------ ------ ------ ------
Net asset value, end of period $9.30 $7.95 $9.85 $12.76 $16.21
- ------------------------------------------ ------ ------ ------ ------ ------
Total return (%) 16.98* (19.29) (22.81) (8.38) 4.92
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.89 1.85 1.87 1.87 1.86
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.07) (0.34) (0.47) (0.14) (0.10)
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 48 69 86 58
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $466 $697 $1,088 $957 $1,581
- --------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a reimbursement fee not greater than 0.30% of
average daily net assets. Prior to February 1, 2003 the fund paid the investment adviser a reimbursement fee not
greater than 0.20% of average daily net assets. To the extent actual expenses were over this limitation, the net
investment loss per share and the ratios would have been:
Net investment loss $(0.03) $(0.06) $(0.08) $(0.04) $(0.04)
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.20 2.09 2.12 2.01 1.95
- --------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.38) (0.58) (0.72) (0.28) (0.19)
- --------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
* The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as
a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset
value per share, the total return for the year ended September 30, 2003 would have been 16.24%.
See notes to financial statements.
Financial Highlights - continued
FOR YEARS ENDED 9/30
CLASS I 2003 2002 2001 2000 1999
Net asset value, beginning of period $8.15 $10.06 $13.03 $16.47 $16.96
- --------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.08 $0.07 $0.06 $0.12 $0.16
- --------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.40 (1.92) (2.91) (1.13) 0.88
- ------------------------------------------ ------ ------ ------ ------ ------
Total from investment operations $1.48 $(1.85) $(2.85) $(1.01) $1.04
- ------------------------------------------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $(0.07) $(0.06) $(0.12) $(0.15) $(0.15)
- --------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
and foreign currency transactions -- -- -- (2.26) (1.38)
- --------------------------------------------------------------------------------------------------------------------------
In excess of net realized gain on
investments and foreign currency
transactions -- -- -- (0.02) --
- ------------------------------------------ ------ ------ ------ ------ ------
Total distributions declared to
shareholders $(0.07) $(0.06) $(0.12) $(2.43) $(1.53)
- ------------------------------------------ ------ ------ ------ ------ ------
Net asset value, end of period $9.56 $8.15 $10.06 $13.03 $16.47
- ------------------------------------------ ------ ------ ------ ------ ------
Total return (%) 18.22* (18.53) (22.05) (7.45) 5.97
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 0.91 0.85 0.87 0.87 0.86
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.92 0.65 0.52 0.84 0.90
- --------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 59 48 69 86 58
- --------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (000
Omitted) $25,809 $27,658 $38,108 $55,327 $85,880
- --------------------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management fees. In consideration,
the fund pays the investment adviser a reimbursement fee not greater than 0.30% of average daily net assets. Prior to
February 1, 2003 the fund paid the investment adviser a reimbursement fee not greater than 0.20% of average daily net
assets. To the extent actual expenses were over this limitation, the net investment income per share and the ratios
would have been:
Net investment income $0.05 $0.04 $0.03 $0.10 $0.14
- --------------------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.22 1.09 1.12 1.01 0.95
- --------------------------------------------------------------------------------------------------------------------------
Net investment income 0.61 0.41 0.27 0.70 0.81
- --------------------------------------------------------------------------------------------------------------------------
# Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
* The fund's total return calculation includes a payment received from a non-recurring litigation settlement recorded as
a realized gain in the Statement of Operations. Excluding the effect of this payment from the fund's ending net asset
value per share, the total return for the year ended September 30, 2003 would have been 17.50%.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Union Standard Equity Fund (the fund) is a diversified series of MFS
Series Trust XI (the trust). The trust is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The fund can invest in foreign securities.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
INVESTMENT VALUATIONS - Equity securities in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Short-term obligations in the fund's portfolio
are valued at amortized cost, which constitutes fair value as determined by
the Board of Trustees. Short-term obligations with a remaining maturity in
excess of 60 days will be valued upon dealer-supplied valuations. Portfolio
investments for which market quotations are not readily available, or whose
values have been materially affected by events occurring after the close of
their primary markets, are valued at fair value as determined in good faith by
or at the direction of the Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are
creditworthy. Each repurchase agreement is recorded at cost. The fund requires
that the securities collateral in a repurchase transaction be
transferred to the custodian in a manner sufficient to enable the fund to
obtain those securities in the event of a default under the repurchase
agreement. The fund monitors, on a daily basis, the value of the collateral to
ensure that its value, including accrued interest, is greater than amounts
owed to the fund under each such repurchase agreement. The fund, along with
other affiliated entities of Massachusetts Financial Services Company (MFS),
may utilize a joint trading account for the purpose of entering into one or
more repurchase agreements.
SECURITY LOANS - State Street Bank and Trust Company ("State Street"), as
lending agent, may loan the securities of the fund to certain qualified
institutions (the "Borrowers") approved by the fund. The loans are
collateralized at all times by cash and/or U.S. Treasury securities in an
amount at least equal to the market value of the securities loaned. State
Street provides the fund with indemnification against Borrower default. The
fund bears the risk of loss with respect to the investment of cash collateral.
Cash collateral is invested in short-term securities. A portion of the income
generated upon investment of the collateral is remitted to the Borrowers, and
the remainder is allocated between the fund and the lending agents. On loans
collateralized by U.S. Treasury securities, a fee is received from the
Borrower, and is allocated between the fund and the lending agent. Income from
securities lending is included in interest income on the Statement of
Operations. The dividend and interest income earned on the securities loaned
is accounted for in the same manner as other dividend and interest income.
At September 30, 2003, there were no securities on loan.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount is shown as a reduction of total expenses on the
Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for capital losses.
The tax character of distributions declared for the years ended
September 30, 2003 and September 30, 2002 was as follows:
9/30/03 9/30/02
Distributions declared from:
- -------------------------------------------------------------------------------
Ordinary income $251,403 $252,045
- -------------------------------------------------------------------------------
During the year ended September 30, 2003, there were no reclassifications due
to differences between book and tax accounting.
As of September 30, 2003, the components of distributable earnings
(accumulated losses) on a tax basis were as follows:
Undistributed ordinary income $270,013
------------------------------------------------------------------
Capital loss carryforward (12,342,401)
------------------------------------------------------------------
Post-October capital loss deferral (3,277,412)
------------------------------------------------------------------
Unrealized appreciation 3,251,803
------------------------------------------------------------------
Post-October capital loss deferrals represent losses realized during the
current fiscal year, but recognized for tax purposes in the next fiscal year.
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on:
EXPIRATION DATE
September 30, 2008 $(551,829)
------------------------------------------------------------------
September 30, 2009 --
------------------------------------------------------------------
September 30, 2010 (6,234,544)
------------------------------------------------------------------
September 30, 2011 (5,556,028)
------------------------------------------------------------------
Total $(12,342,401)
------------------------------------------------------------------
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B shares
will convert to Class A shares, respectively approximately eight years after
purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.65%
of the fund's average daily net assets.
The fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the fund's operating expenses, exclusive of
management, distribution, and service fees. The fund in turn will pay MFS an
expense reimbursement fee not greater than 0.30% of average daily net assets.
Prior to February 1, 2003, the expense reimbursement fee was not greater
than 0.20% of average daily net assets. To the extent that the expense
reimbursement fee exceeds the fund's actual expenses, the excess will be
applied to amounts paid by MFS in prior years. At September 30, 2003,
aggregate unreimbursed expenses amounted to $78,071.
The fund pays compensation to the Independent Trustees ("Trustees") in the
form of both a retainer and attendance fees, and pays no compensation directly
to its Trustees who are officers of the investment adviser, or to officers of
the fund, all of whom receive remuneration for their services to the fund from
MFS. Certain officers and Trustees of the fund are officers or directors of
MFS, MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
not to exceed the following annual percentage rates of the fund's average
daily net assets:
First $2 billion 0.0175%
------------------------------------------------------------------
Next $2.5 billion 0.0130%
------------------------------------------------------------------
Next $2.5 billion 0.0005%
------------------------------------------------------------------
In excess of $7 billion 0.0000%
------------------------------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$1,448 for the year ended September 30, 2003, as its portion of the sales
charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A, Class B, Class C
shares pursuant to Rule 12b-1 of the Investment Company Act of 1940
as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes in order that MFD may pay expenses on behalf of the fund related to
the distribution and servicing of its shares. These expenses include a service
fee paid to each securities dealer that enters into a sales agreement with MFD
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C
Distribution Fee 0.10% 0.75% 0.75%
- ------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25%
- ------------------------------------------------------------------------------
Total Distribution Plan 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities
dealer, which for the year ended September 30, 2003, amounted to:
CLASS A CLASS B CLASS C
Service Fee Retained by MFD $1,738 $17 $1
- ------------------------------------------------------------------------------
Fees incurred under the distribution plan during the year ended
September 30, 2003, were as follows:
CLASS A CLASS B CLASS C
Total Distribution Plan 0.35% 1.00% 1.00%
- ------------------------------------------------------------------------------
Certain Class A, Class C shares are subject to a contingent deferred sales
charge in the event of a shareholder redemption within, for class A shares,
12 months following the purchase, and, for class C shares, the first year from
the end of the calendar month of purchase. A contingent deferred sales charge
is imposed on shareholder redemptions of Class B shares in the event of a
shareholder redemption within six years from the end of the calendar month of
purchase. MFD receives all contingent deferred sales charges. Contingent
deferred sales charges imposed during the year ended September 30, 2003, were
as follows:
CLASS A CLASS B CLASS C
Contingent Deferred Sales Charges Imposed $25 $4,351 $39
- ------------------------------------------------------------------------------
SHAREHOLDER SERVICING AGENT - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the fund's average daily net assets at an annual rate of
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$19,947,122 and $ 26,681,438, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $31,679,589
------------------------------------------------------------------
Gross unrealized appreciation $5,516,517
------------------------------------------------------------------
Gross unrealized depreciation (2,264,714)
------------------------------------------------------------------
Net unrealized appreciation $3,251,803
------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 9/30/03 Year ended 9/30/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 313,026 $2,783,570 408,358 $4,086,049
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 2,153 18,692 1,463 15,665
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (342,322) (3,023,243) (635,329) (6,063,060)
- -------------------------------------------------------------------------------------------------------------
Net decrease (27,143) $(220,981) (225,508) $(1,961,346)
- -------------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 124,083 $1,104,004 208,093 $1,977,566
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (218,658) (1,780,263) (215,044) (2,203,017)
- -------------------------------------------------------------------------------------------------------------
Net decrease (94,575) $(676,259) (6,951) $(225,451)
- -------------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 14,261 $131,893 40,124 $369,565
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (51,855) (412,125) (62,915) (603,368)
- -------------------------------------------------------------------------------------------------------------
Net decrease (37,594) $(280,232) (22,791) $(233,803)
- -------------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 4,761 $44,332 722 $7,395
- -------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions 26,621 232,131 21,309 229,916
- -------------------------------------------------------------------------------------------------------------
Shares reacquired (722,966) (6,340,494) (416,825) (4,371,963)
- -------------------------------------------------------------------------------------------------------------
Net decrease (691,584) $(6,064,031) (394,794) $(4,134,652)
- -------------------------------------------------------------------------------------------------------------
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. In addition, a commitment fee, based on the average daily unused
portion of the line of credit, is allocated among the participating funds at
the end of each quarter. The commitment fee allocated to the fund for the year
ended September 30, 2003, was $148. The fund had no borrowings during
the year.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust XI and Shareholders of
MFS Union Standard Equity Fund:
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments of MFS Union Standard Equity Fund (one
of the series comprising MFS Series Trust XI) (the "Trust") as of September
30, 2003, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of September 30, 2003,
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of MFS Union Standard Equity Fund as of
September 30, 2003, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and its financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the
United States of America.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 6, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust XI,
of which the fund is a series, including their principal occupations, which, unless specific dates are shown,
are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN (born 09/12/59) ROBERT R. FLAHERTY (born 09/18/63)
Trustee and President Assistant Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Vice
Executive Officer and Director President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59)
Assistant Secretary and Assistant Clerk RICHARD M. HISEY (born 08/29/58)
Massachusetts Financial Services Company, Senior Treasurer
Vice President and Associate General Counsel Massachusetts Financial Services Company, Senior
Vice President (since July 2002); The Bank of New
STEPHEN E. CAVAN (born 11/06/53) York, Senior Vice President (September 2000 to
Secretary and Clerk July 2002); Lexington Global Asset Managers, Inc.,
Massachusetts Financial Services Company, Senior Executive Vice President and Chief Financial
Vice President, General Counsel and Secretary Officer (prior to September 2000); Lexington
Funds, Treasurer (prior to September 2000)
STEPHANIE A. DESISTO (born 10/01/53)
Assistant Treasurer ELLEN MOYNIHAN (born 11/13/57)
Massachusetts Financial Services Company, Vice Assistant Treasurer
President (since April 2003); Brown Brothers Massachusetts Financial Services Company, Vice
Harriman & Co., Senior Vice President (November President
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President JAMES O. YOST (born 06/12/60)
(prior to November 2002) Assistant Treasurer
Massachusetts Financial Services Company, Senior
Vice President
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames and Gutow, have served in their capacity as Trustee of the Trust continuously since originally
elected or appointed. Messrs. Ballen, Cohn, Ives, Perera, Poorvu, Sherratt, and Smith, and Mses. O'Neill and
Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke
has served as a Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- --------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIAN
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR AUDITORS
MFS Fund Distributors, Inc. Deloitte & Touche LLP
500 Boylston Street, Boston, MA
02116-3741
PORTFOLIO MANAGERS
Lisa B. Nurme(1)
James M. Perkins(1)
(1)MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
For the year ended September 30, 2003, the amount of distributions from income
eligible for the 70% dividends received deduction for corporations is 100%.
The fund hereby designates the maximum amount allowable as qualified dividend
income eligible for a maximum tax rate of 15%, as provided for by the Jobs and
Growth Tax Relief Reconciliation Act of 2003. Complete information will be
reported in conjunction with your 2003 Form 1099-DIV.
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day,
or stock and bond outlooks touch-tone required 365 days a year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
UNE-ANN-11/03 3M
MFS(R) Mutual Funds
ANNUAL REPORT 9/30/03
[graphic omitted]
MFS(R) MID CAP VALUE FUND
A path for pursuing opportunity
[logo] M F S(R)
INVESTMENT MANAGEMENT
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
MFS(R) MID CAP VALUE FUND
The fund seeks capital appreciation.
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
LETTER FROM THE CHAIRMAN 1
- ----------------------------------------------------
MFS ORIGINAL RESEARCH(R) 4
- ----------------------------------------------------
MANAGEMENT REVIEW 5
- ----------------------------------------------------
PERFORMANCE SUMMARY 9
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 13
- ----------------------------------------------------
FINANCIAL STATEMENTS 21
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 34
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 42
- ----------------------------------------------------
TRUSTEES AND OFFICERS 43
- ----------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES
OF INVESTORS 45
- ----------------------------------------------------
FEDERAL TAX INFORMATION 46
- ----------------------------------------------------
CONTACT INFORMATION 47
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
- --------------------------------------------------------------------------------
Dear Shareholders,
[Photo of Jeffrey L. Shames]
Our firm was built on the philosophy that bottom-up fundamental research is
the best means of achieving superior long-term investment performance. When
you're managing billions of dollars for investors, we think you have an
obligation to have in-depth, firsthand knowledge of every company owned,
anywhere in the world.
We have structured our equity and fixed-income investment teams to capitalize
on the strength of our investment process and the global reach of our analysts
based around the world. Our global research team is composed of 45 equity
research analysts, 27 based in the United States and 18 based abroad, and 26
credit research analysts. Each analyst is assigned one or more specific
industries and then charged with identifying the most attractive investment
ideas within these industries. Our U.S. and non-U.S. equity research analysts
are unified into one team that emphasizes a collaborative process in analyzing
securities around the globe. Credit analysts also share their expertise in
each segment of the fixed-income market and work as part of the same team
ensuring that every member has access to information that may have a material
effect on their investment decisions. As MFS(R) continues to grow and as
markets become more complex, we believe our structure will enable us to
maintain a consistent investment process with the goal of providing strong,
long-term investment performance across market capitalizations, investment
disciplines, and country borders for our investors.
THINKING GLOBALLY
More companies than ever compete globally and, therefore, we must make
investment decisions knowing what is occurring outside of a company's local
market. This trend plays to the strength of our environment of collaboration
between our analysts and portfolio managers around the globe. The analysts
know the most details about individual companies in specific industries and
geographic regions. The portfolio managers have broader, cross-industry
insights and a wider perspective on companies and industries. Our goal is to
make sure those two sets of perspectives coordinate and work well together. As
the world's markets become more interdependent, we believe our collaborative
environment allows us to produce solid investment ideas for our portfolios.
BUILDING A NETWORK
Simply put, we believe our structure assures that our analysts maintain their
peripheral vision rather than becoming too immersed in a specific segment of
the market. We do not believe that analysts and portfolio managers - no matter
how talented they may be - can succeed by working in a vacuum. Through the
latest technology available, our entire research team meets frequently via
video and telephone teleconferences, e-mail, and PDAs (personal digital
assistants). When we hire new analysts, we require them to spend an average of
one year in Boston to learn MFS' culture and to build relationships with their
peers. We believe the interaction among our analysts is the key to making our
collaborative process work toward delivering superior long-term investment
performance for our investors. Our analysts work out of four research offices
in Boston, London, Singapore, and Tokyo, and are assigned to specific regions
and industries. They meet regularly with their colleagues to discuss world
trends affecting the companies they cover.
In addition, our equity and fixed-income analysts often visit company
managements as a team. This collaboration is vital because of the different
perspectives they bring to their analysis. Because a company's stock price has
tended to follow its earnings over time, our equity research analysts tend to
focus on gauging earnings potential, a company's position within its industry,
and its ability to grow its market share. Conversely, our fixed-income
analysts will look at stability of a company's cash flow, the value of its
assets, and its capital structure to gauge whether the company can generate
enough free cash flow to pay off its debt. As a result of their collaboration,
we believe we're able to see a more complete view of a company.
WORKING TOGETHER
Our portfolio managers also work closely with the analysts to select the most
appropriate securities for their portfolios from the various recommendations
made by the analysts. Opinions are exchanged and ideas are challenged so that
each member of our team is involved in our investment process. In fact, our
portfolio managers will be the first ones to tell you that many of their best
ideas start with the research analysts. We believe our collaborative approach
also provides us with an effective way to assess risk. Our portfolio managers
are not discouraged from taking on an appropriate level of risk; however, we
have rigorous guidelines to assure that the level of risk is measured and
monitored and consistent with the investment philosophies of each of our
portfolios. All told, we believe our culture empowers the members of our
investment team to continue to do their best work and allows them to make
better investment decisions.
As always, we appreciate your confidence in MFS and welcome any questions or
comments you may have.
Respectfully,
/s/ Jeffrey L. Shames
Jeffrey L. Shames
Chairman
MFS Investment Management(R)
October 21, 2003
The opinions expressed in this letter are those of MFS and no forecasts can be
guaranteed.
- --------------------------------------------------------------------------------
MFS ORIGINAL RESEARCH(R)
- --------------------------------------------------------------------------------
THE HUMAN SIDE OF MONEY MANAGEMENT
For nearly 80 years MFS has been offering investors clear paths to pursuing
specific investment objectives. Today, millions of individuals and thousands
of institutions all over the world look to MFS to manage their assets with
insight and care.
Our success, we believe, has to do with the fact that we see investors as
people with plans, not just dollars to invest.
When you invest with MFS, you invest with a company dedicated to helping you
realize your long-term financial goals.
INVESTORS CHOOSE MFS FOR OUR
o global asset management expertise across all asset classes
o time-tested money management process for pursuing consistent results
o full spectrum of investment products backed by MFS Original Research(R)
o resources and services that match real-life needs
TURNING INFORMATION INTO OPPORTUNITY
Sound investments begin with sound information. MFS has been doing its own
research and analyzing findings in-house for decades. The process we use to
uncover opportunity is called MFS Original Research(R).
MFS ORIGINAL RESEARCH INVOLVES:
o meeting with the management of 3,000 companies each year to assess their
business plans and the managers' ability to execute those plans
o making onsite visits to more than 2,000 companies annually to gain first-hand
knowledge of their operations and products
o analyzing financial statements and balance sheets
o talking extensively with companies' customers and competitors
o developing our own proprietary estimates of companies' earnings
- --------------------------------------------------------------------------------
MANAGEMENT REVIEW
- --------------------------------------------------------------------------------
MARKET ENVIRONMENT
The 12-month reporting period ended September 30, 2003 was marked by
volatility but, in the end, rewarded long-term investors with better results
than they had experienced in quite some time. Nearly all asset classes showed
positive performance for the period.
The economic environment showed signs of strengthening, corporate earnings
improved, interest rates stayed low and tax cuts added cash to the markets.
Inflation continued to be low and the U.S. Federal Reserve Board repeatedly
said that it had no plans to increase interest rates in the immediate future.
The stock market rallied in October and November of 2002, but retreated
somewhat during the winter months because of mixed economic signals and
increased geopolitical tensions. However, the market began a rebound in mid-
March that continued through August before taking a pause in September.
Technology stocks led the market rallies fuelled largely by investor hopes for
economic improvement.
- -------------------------------------------------
TOP 5 STOCK HOLDINGS
AS OF 9/30/03
SEARS, ROEBUCK & CO. 1.6%
General merchandise retailer
- -------------------------------------------------
REEBOK INTERNATIONAL, LTD. 1.5%
Fitness product and apparel design and
manufacturer
- -------------------------------------------------
AMERISOURCE BERGEN CORP. 1.3%
Wholesale pharmaceutical distributor
- -------------------------------------------------
NOBLE DRILLING CORP. 1.3%
Provider of drilling services to the
oil and gas industries
- -------------------------------------------------
TCF FINANCIAL CORP. 1.3%
Holding company for TCF National Bank
- -------------------------------------------------
The portfolio is actively managed, and current
holdings may be different.
- -------------------------------------------------
FUND POSITIONING
Mid-sized companies, based on market capitalization, outperformed larger
companies because mid-sized companies, as they tend to serve local markets, are
generally less affected by national and world events. In addition, these
companies are more economically sensitive and are among the early beneficiaries
of an economic recovery. Throughout the period, higher-risk stocks generated the
strongest returns for the period. The fund's focus on strong earnings, cash
flow, and strong management caused its performance to trail that of its
benchmark index.
DETRACTORS FROM RELATIVE PERFORMANCE
We were overweighted in the energy sector because we expected that higher oil
and gas prices would support improved earnings. Although our holdings in the
sector rose, as a group they lagged the performance of the overall market,
dampening relative performance. We continue to be overweighted in the sector
as we believe higher energy prices over the longer term should continue to
support earnings.
Although the technology sector posted the highest absolute return for the
fund, the group's results negatively affected the fund's return relative to
its benchmark. Performance from Networks Associates was particularly
disappointing. Network Associates, a network management and security provider,
missed its earnings estimates and its stock price declined. However, we
continue to own the stock because we like the company's longer-term prospects
and its new product flow.
In the months leading up to the Iraqi conflict, the stock prices of defense
contractors EDO Corporation and Alliant Techsystems rose because investors
expected increased defense spending. However, when tensions eased starting in
mid-March, the stock prices of these companies retreated.
Other stocks that detracted from performance included commercial printer
Quebecor World and food company Interstate Bakeries, best known for its
Wonderbread, Hostess, and Sunbeam brand baked goods. As previously reported,
the stock prices of both companies were negatively affected by lower earnings
and management changes. Both stocks were sold from the portfolio.
CONTRIBUTORS TO PERFORMANCE
Steady earnings growth from many of our holdings in regional banks contributed
to the strong performance from financial services holdings. These banks
continued to post good revenues from their lending businesses, especially
mortgages.
Retailing was another top-performing sector for the fund, especially Sears
Roebuck and GAP. Sears' stock had been depressed as a result of problems in
its credit card unit. When the company announced that it would sell its credit
card business, the stock rebounded. GAP stock rose because of a new CEO and
the company's efforts to change its merchandizing image and to turn its
business around. When GAP's stock price reached our target, we sold it.
The fund's best-performing holding was AT&T Wireless in the utilities and
communications sector. The company's stock benefited from generally improving
fundamentals in the wireless markets; from better-than-expected increases in
its average revenue per unit; and from a "churn rate" - the rate at which a
company loses customers to competitors - that slowed more than many analysts
had expected. This stock was sold when it reached our price objective.
Also in utilities, energy producer and merchant Calpine contributed solid
returns to fund performance. The company had suffered from weak power demand
and concern that it wouldn't meet its debt obligations. The power market
improved somewhat, natural gas prices rose, and the company was able to access
the financing it needed.
Investors had overreacted to near-term events at Genzyme, and its stock had
fallen to excessively low levels in 2002. This year, sales picked up for the
firm, and its developmental drugs showed surprising promise. The price of the
stock rebounded, and we sold it when it reached our price target.
Other stocks that contributed to fund returns included Eastman Kodak,
Pharmaceutical Product Development, Applied Micro Circuits, Cypress
Semiconductor, and J.B. Hunt - all of which were sold when they reached our
price targets. Kodak's stock price rose early in the period because digital
cameras did not appear to be cutting into their film business as much as some
investors had expected. Pharmaceutical Product Development provides research
and development services for pharmaceutical and biotechnology firms - services
that are currently in high demand. Stock prices for Applied Micro Circuits,
which serves the telecommunications industry, and Cypress rebounded sharply
along with other stocks in the technology sector. Trucking company J.B. Hunt
benefited from a stronger economy and an increase in imports from the Far East
that needed to be transported throughout the United States.
Respectfully,
/s/ Constantinos G. Mokas
Constantinos G. Mokas
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and
are current only through the end of the period of the report as stated on the
cover. These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
- --------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 9/30/03
- --------------------------------------------------------------------------------
The following information illustrates the historical performance of the fund's
original share class in comparison to its benchmark. Performance results
include the deduction of the maximum applicable sales charge and reflect the
percentage change in net asset value, including reinvestment of dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. The performance of other share classes will be
greater than or less than the line shown. PAST PERFORMANCE IS NO GUARANTEE OF
FUTURE RESULTS. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
August 31, 2001, through September 30, 2003. Index information is from
September 1, 2001.)
MFS Mid Cap
Value Fund - Russell Mid Cap
Class A Value Index
8/01 $ 9,425 $10,000
9/01 8,237 9,046
9/02 8,070 8,552
9/03 10,107 10,972
TOTAL RETURNS
- ------------------------
Average annual
without sales charge
- ------------------------
Class
Share class inception date 1-yr Life*
- -------------------------------------------------------------------------
A 8/31/2001 25.23% 3.41%
- -------------------------------------------------------------------------
B 11/1/2001 24.38% 2.89%
- -------------------------------------------------------------------------
C 11/1/2001 24.38% 2.89%
- -------------------------------------------------------------------------
I 11/1/2001 25.58% 3.79%
- -------------------------------------------------------------------------
R 12/31/2002 25.23% 3.41%
- -------------------------------------------------------------------------
529A 7/31/2002 24.91% 3.23%
- -------------------------------------------------------------------------
529B 7/31/2002 24.18% 2.92%
- -------------------------------------------------------------------------
529C 7/31/2002 24.30% 2.91%
- -------------------------------------------------------------------------
- ------------------------
Average annual
- ------------------------
- -------------------------------------------------------------------------
Comparative Benchmarks 1-yr Life*
- -------------------------------------------------------------------------
Average mid cap
value fund+ 30.78% 3.64%
- -------------------------------------------------------------------------
Russell Midcap
Value Index# 28.30% 4.56%
- -------------------------------------------------------------------------
- ------------------------
Average annual
with sales charge
- ------------------------
Share class
- -------------------------------------------------------------------------
A 18.03% 0.51%
- -------------------------------------------------------------------------
B 20.38% 1.49%
- -------------------------------------------------------------------------
C 23.38% 2.89%
- -------------------------------------------------------------------------
529A 17.73% 0.33%
- -------------------------------------------------------------------------
529B 20.18% 1.51%
- -------------------------------------------------------------------------
529C 23.30% 2.91%
- -------------------------------------------------------------------------
I and R class shares do not have a sales charge. Please see Notes to
Performance Summary for more details.
- ------------------------
Cumulative without
sales charge
- ------------------------
- -------------------------------------------------------------------------
A 25.23% 7.24%
- -------------------------------------------------------------------------
B 24.38% 6.12%
- -------------------------------------------------------------------------
C 24.38% 6.12%
- -------------------------------------------------------------------------
I 25.58% 8.05%
- -------------------------------------------------------------------------
R 25.23% 7.24%
- -------------------------------------------------------------------------
529A 24.91% 6.83%
- -------------------------------------------------------------------------
529B 24.18% 6.18%
- -------------------------------------------------------------------------
529C 24.30% 6.16%
- -------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
August 31, 2001, through September 30, 2003. Index information is from
September 1, 2001.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
RUSSELL MIDCAP VALUE INDEX - measures the performance of U.S. mid-cap value
stocks.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A and 529A results, including sales charge, reflects the deduction of
the maximum 5.75% sales charge. Class B and 529B results, including sales
charge, reflects the deduction of the applicable contingent deferred sales
charge (CDSC), which declines over six years from 4% to 0%. Class C and 529C
results, including sales charge, redeemed within one year from the end of the
calendar month of purchase reflects the deduction of the 1% CDSC. Class I
shares have no sales charges and are available only to certain investors.
Class R shares have no sales charges and are available only to certain
retirement plans. Class 529A, 529B, and 529C shares are only available in
conjunction with qualified tuition programs, such as the MFS 529 Savings Plan.
Performance for share classes offered after class A shares includes the
performance of the fund's class A shares for periods prior to their offering.
Blended class performance has been adjusted to take into account differences
in sales loads, if any, applicable to these share classes, but has not been
adjusted to take into account differences in class specific operating expenses
(such as Rule 12b-1 fees). Compared to performance these share classes would
have experienced had they been offered for the entire period, the use of
blended performance generally results in higher performance for share classes
with higher operating expenses than the initial share class, and lower
performance for share classes with lower operating expenses than the initial
share class.
All performance results reflect any applicable expense subsidies and waivers
in effect during the periods shown; without these, the results would have been
less favorable. See the prospectus and financial statements for details. All
results are historical and assume the reinvestment of dividends and capital
gains.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investing in foreign and/or emerging markets securities involves risks
relating to interest rates, currency exchange rates, economic, and political
conditions.
Investing in mid-sized companies is riskier than investing in more-
established companies.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 9/30/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund. It is
categorized by broad-based asset classes.
Stocks - 98.2%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 95.0%
- -----------------------------------------------------------------------------------------------------
Aerospace - 2.5%
- -----------------------------------------------------------------------------------------------------
Alliant Techsystems, Inc.* 55,000 $2,642,750
- -----------------------------------------------------------------------------------------------------
EDO Corp. 50,000 1,012,500
- -----------------------------------------------------------------------------------------------------
United Defense Industries, Inc.* 70,000 1,987,300
- -----------------------------------------------------------------------------------------------------
$5,642,550
- -----------------------------------------------------------------------------------------------------
Alcoholic Beverages - 0.5%
- -----------------------------------------------------------------------------------------------------
Constellation Brands, Inc.* 33,500 $1,021,415
- -----------------------------------------------------------------------------------------------------
Apparel Manufacturers - 3.4%
- -----------------------------------------------------------------------------------------------------
Kellwood Co. 60,000 $2,007,000
- -----------------------------------------------------------------------------------------------------
Liz Claiborne, Inc. 65,000 2,213,250
- -----------------------------------------------------------------------------------------------------
Reebok International, Ltd. 100,000 3,343,000
- -----------------------------------------------------------------------------------------------------
$7,563,250
- -----------------------------------------------------------------------------------------------------
Automotive - 1.9%
- -----------------------------------------------------------------------------------------------------
Autoliv, Inc. 50,000 $1,508,500
- -----------------------------------------------------------------------------------------------------
Johnson Controls, Inc. 15,000 1,419,000
- -----------------------------------------------------------------------------------------------------
Lear Corp.* 25,000 1,316,000
- -----------------------------------------------------------------------------------------------------
$4,243,500
- -----------------------------------------------------------------------------------------------------
Banks & Credit Companies - 10.4%
- -----------------------------------------------------------------------------------------------------
Astoria Financial Corp. 65,000 $2,008,500
- -----------------------------------------------------------------------------------------------------
Banknorth Group, Inc. 80,000 2,257,600
- -----------------------------------------------------------------------------------------------------
Charter One Financial, Inc. 65,000 1,989,000
- -----------------------------------------------------------------------------------------------------
Countrywide Financial Corp. 23,500 1,839,580
- -----------------------------------------------------------------------------------------------------
First Tennessee National Corp. 60,000 2,547,600
- -----------------------------------------------------------------------------------------------------
GreenPoint Financial Corp. 50,000 1,493,000
- -----------------------------------------------------------------------------------------------------
Mercantile Bankshares Corp. 55,000 2,200,000
- -----------------------------------------------------------------------------------------------------
National Commerce Financial Corp. 70,000 1,741,600
- -----------------------------------------------------------------------------------------------------
New York Community Bancorp, Inc. 36,700 1,156,417
- -----------------------------------------------------------------------------------------------------
Provident Finacial Services, Inc. 60,000 1,149,600
- -----------------------------------------------------------------------------------------------------
Roslyn Bancorp, Inc. 11,000 258,280
- -----------------------------------------------------------------------------------------------------
SouthTrust Corp. 35,000 1,028,650
- -----------------------------------------------------------------------------------------------------
TCF Financial Corp. 60,000 2,877,000
- -----------------------------------------------------------------------------------------------------
Wintrust Financial Corp. 18,000 678,060
- -----------------------------------------------------------------------------------------------------
$23,224,887
- -----------------------------------------------------------------------------------------------------
Biotechnology - 1.7%
- -----------------------------------------------------------------------------------------------------
Millipore Corp.* 35,000 $1,612,100
- -----------------------------------------------------------------------------------------------------
Neurocrine Biosciences, Inc.* 45,000 2,228,400
- -----------------------------------------------------------------------------------------------------
$3,840,500
- -----------------------------------------------------------------------------------------------------
Broadcast & Cable TV - 2.1%
- -----------------------------------------------------------------------------------------------------
Cablevision Systems New York Group* 70,000 $1,267,000
- -----------------------------------------------------------------------------------------------------
Cox Radio, Inc., "A"* 70,000 1,530,900
- -----------------------------------------------------------------------------------------------------
Hearst-Argyle Television, Inc.* 80,000 1,936,000
- -----------------------------------------------------------------------------------------------------
$4,733,900
- -----------------------------------------------------------------------------------------------------
Brokerage & Asset Managers - 2.9%
- -----------------------------------------------------------------------------------------------------
E*TRADE Financial Corp.* 110,000 $1,018,600
- -----------------------------------------------------------------------------------------------------
Eaton Vance Corp. 45,000 1,506,600
- -----------------------------------------------------------------------------------------------------
Federated Investors, Inc., "B" 65,000 1,800,500
- -----------------------------------------------------------------------------------------------------
Franklin Resources, Inc. 50,000 2,210,500
- -----------------------------------------------------------------------------------------------------
$6,536,200
- -----------------------------------------------------------------------------------------------------
Business Services - 1.9%
- -----------------------------------------------------------------------------------------------------
DST Systems, Inc.* 35,000 $1,316,000
- -----------------------------------------------------------------------------------------------------
MPS Group, Inc.* 100,000 900,000
- -----------------------------------------------------------------------------------------------------
School Specialty, Inc.* 70,000 1,974,700
- -----------------------------------------------------------------------------------------------------
$4,190,700
- -----------------------------------------------------------------------------------------------------
Chemicals - 2.0%
- -----------------------------------------------------------------------------------------------------
Lyondell Chemical Co. 210,000 $2,683,800
- -----------------------------------------------------------------------------------------------------
PPG Industries, Inc. 35,000 1,827,700
- -----------------------------------------------------------------------------------------------------
$4,511,500
- -----------------------------------------------------------------------------------------------------
Computer Software - 1.2%
- -----------------------------------------------------------------------------------------------------
Cadence Design Systems, Inc.* 65,000 $871,000
- -----------------------------------------------------------------------------------------------------
Networks Associates, Inc.* 138,560 1,906,586
- -----------------------------------------------------------------------------------------------------
$2,777,586
- -----------------------------------------------------------------------------------------------------
Computer Software - Systems - 1.0%
- -----------------------------------------------------------------------------------------------------
Acxiom Corp.* 50,000 $788,000
- -----------------------------------------------------------------------------------------------------
BearingPoint, Inc.* 175,000 1,396,500
- -----------------------------------------------------------------------------------------------------
$2,184,500
- -----------------------------------------------------------------------------------------------------
Consumer Goods & Services - 1.3%
- -----------------------------------------------------------------------------------------------------
Newell Rubbermaid, Inc. 130,000 $2,817,100
- -----------------------------------------------------------------------------------------------------
Containers - 3.2%
- -----------------------------------------------------------------------------------------------------
Anchor Glass Container Corp.* 76,300 $1,243,690
- -----------------------------------------------------------------------------------------------------
Owens Illinois, Inc.* 156,000 1,781,520
- -----------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.* 180,000 2,696,400
- -----------------------------------------------------------------------------------------------------
Sonoco Products Co. 65,000 1,426,750
- -----------------------------------------------------------------------------------------------------
$7,148,360
- -----------------------------------------------------------------------------------------------------
Electrical Equipment - 2.1%
- -----------------------------------------------------------------------------------------------------
American Standard Cos., Inc.* 27,200 $2,291,600
- -----------------------------------------------------------------------------------------------------
Black & Decker Corp. 50,000 2,027,500
- -----------------------------------------------------------------------------------------------------
Rockwell Automation, Inc. 18,500 485,625
- -----------------------------------------------------------------------------------------------------
$4,804,725
- -----------------------------------------------------------------------------------------------------
Electronics - 2.6%
- -----------------------------------------------------------------------------------------------------
Agere Systems, Inc., "B"* 400,000 $1,156,000
- -----------------------------------------------------------------------------------------------------
AMIS Holdings, Inc.* 25,000 461,500
- -----------------------------------------------------------------------------------------------------
Amphenol Corp.* 19,800 1,030,590
- -----------------------------------------------------------------------------------------------------
Fairchild Semiconductor International Co.* 40,000 663,200
- -----------------------------------------------------------------------------------------------------
Novellus Systems, Inc.* 50,000 1,687,500
- -----------------------------------------------------------------------------------------------------
Tektronix, Inc.* 30,000 742,500
- -----------------------------------------------------------------------------------------------------
$5,741,290
- -----------------------------------------------------------------------------------------------------
Energy - Independent - 4.6%
- -----------------------------------------------------------------------------------------------------
Devon Energy Corp. 40,000 $1,927,600
- -----------------------------------------------------------------------------------------------------
EOG Resources, Inc. 45,000 1,878,300
- -----------------------------------------------------------------------------------------------------
Newfield Exploration Co.* 40,000 1,542,800
- -----------------------------------------------------------------------------------------------------
Tom Brown, Inc.* 70,000 1,799,000
- -----------------------------------------------------------------------------------------------------
Unocal Corp. 47,100 1,484,592
- -----------------------------------------------------------------------------------------------------
XTO Energy, Inc. 75,000 1,574,250
- -----------------------------------------------------------------------------------------------------
$10,206,542
- -----------------------------------------------------------------------------------------------------
Food & Drug Stores - 0.1%
- -----------------------------------------------------------------------------------------------------
Rite Aid Corp.* 50,000 $258,000
- -----------------------------------------------------------------------------------------------------
Food & Non Alcoholic Beverages - 2.2%
- -----------------------------------------------------------------------------------------------------
Archer-Daniels-Midland Co. 110,000 $1,442,100
- -----------------------------------------------------------------------------------------------------
Dean Foods Co.* 45,000 1,396,350
- -----------------------------------------------------------------------------------------------------
Del Monte Foods Co.* 120,000 1,045,200
- -----------------------------------------------------------------------------------------------------
Hormel Foods Corp. 46,400 1,066,272
- -----------------------------------------------------------------------------------------------------
$4,949,922
- -----------------------------------------------------------------------------------------------------
Forest & Paper Products - 1.1%
- -----------------------------------------------------------------------------------------------------
Bowater, Inc. 60,000 $2,523,600
- -----------------------------------------------------------------------------------------------------
Furniture & Appliances - 0.8%
- -----------------------------------------------------------------------------------------------------
Stanley Works 60,000 $1,771,200
- -----------------------------------------------------------------------------------------------------
Gaming & Lodging - 2.3%
- -----------------------------------------------------------------------------------------------------
Hilton Hotels Corp. 150,000 $2,433,000
- -----------------------------------------------------------------------------------------------------
MGM Mirage, Inc.* 45,000 1,644,750
- -----------------------------------------------------------------------------------------------------
Starwood Hotels & Resorts Co. 30,000 1,044,000
- -----------------------------------------------------------------------------------------------------
$5,121,750
- -----------------------------------------------------------------------------------------------------
General Merchandise - 2.1%
- -----------------------------------------------------------------------------------------------------
May Department Stores Co. 50,000 $1,231,500
- -----------------------------------------------------------------------------------------------------
Sears, Roebuck & Co. 80,000 3,498,400
- -----------------------------------------------------------------------------------------------------
$4,729,900
- -----------------------------------------------------------------------------------------------------
Insurance - 2.7%
- -----------------------------------------------------------------------------------------------------
Safeco Corp. 39,000 $1,375,140
- -----------------------------------------------------------------------------------------------------
St. Paul Cos., Inc. 55,300 2,047,759
- -----------------------------------------------------------------------------------------------------
U.S.I. Holdings Corp.* 125,000 1,626,250
- -----------------------------------------------------------------------------------------------------
UnumProvident Corp. 65,000 960,050
- -----------------------------------------------------------------------------------------------------
$6,009,199
- -----------------------------------------------------------------------------------------------------
Leisure & Toys - 0.6%
- -----------------------------------------------------------------------------------------------------
Hasbro, Inc. 70,000 $1,307,600
- -----------------------------------------------------------------------------------------------------
Machinery & Tools - 0.8%
- -----------------------------------------------------------------------------------------------------
AGCO Corp.* 110,000 $1,885,400
- -----------------------------------------------------------------------------------------------------
Medical & Health Technology & Services - 2.5%
- -----------------------------------------------------------------------------------------------------
Apria Healthcare Group, Inc.* 40,000 $1,095,200
- -----------------------------------------------------------------------------------------------------
Fisher Scientific International, Inc.* 55,000 2,182,950
- -----------------------------------------------------------------------------------------------------
Tenet Healthcare Corp.* 160,000 2,316,800
- -----------------------------------------------------------------------------------------------------
$5,594,950
- -----------------------------------------------------------------------------------------------------
Medical Equipment - 4.8%
- -----------------------------------------------------------------------------------------------------
AmeriSource Bergen Corp. 55,000 $2,972,750
- -----------------------------------------------------------------------------------------------------
Apogent Technologies, Inc.* 32,200 671,692
- -----------------------------------------------------------------------------------------------------
Applera Corp. - Applied Biosystems Group 78,000 1,740,180
- -----------------------------------------------------------------------------------------------------
C.R. Bard, Inc. 40,000 2,840,000
- -----------------------------------------------------------------------------------------------------
DENTSPLY International, Inc. 20,000 896,800
- -----------------------------------------------------------------------------------------------------
Thermo Electron Corp.* 75,000 1,627,500
- -----------------------------------------------------------------------------------------------------
$10,748,922
- -----------------------------------------------------------------------------------------------------
Natural Gas - Distribution - 0.8%
- -----------------------------------------------------------------------------------------------------
AGL Resources, Inc. 40,000 $1,126,800
- -----------------------------------------------------------------------------------------------------
KeySpan Corp. 21,500 754,220
- -----------------------------------------------------------------------------------------------------
$1,881,020
- -----------------------------------------------------------------------------------------------------
Oil Services - 3.3%
- -----------------------------------------------------------------------------------------------------
GlobalSantaFe Corp. 100,000 $2,395,000
- -----------------------------------------------------------------------------------------------------
Noble Drilling Corp.* 85,000 2,889,150
- -----------------------------------------------------------------------------------------------------
Smith International, Inc.* 60,000 2,158,800
- -----------------------------------------------------------------------------------------------------
$7,442,950
- -----------------------------------------------------------------------------------------------------
Personal Computers & Peripherals - 1.5%
- -----------------------------------------------------------------------------------------------------
Ingram Micro, Inc.* 160,000 $2,088,000
- -----------------------------------------------------------------------------------------------------
Solectron Corp.* 200,000 1,170,000
- -----------------------------------------------------------------------------------------------------
$3,258,000
- -----------------------------------------------------------------------------------------------------
Pharmaceuticals - 0.5%
- -----------------------------------------------------------------------------------------------------
United Therapeutics Corp.* 50,000 $1,129,500
- -----------------------------------------------------------------------------------------------------
Printing & Publishing - 3.8%
- -----------------------------------------------------------------------------------------------------
Bowne & Co., Inc. 75,000 $1,121,250
- -----------------------------------------------------------------------------------------------------
Dunn & Bradstreet Corp.* 30,000 1,246,200
- -----------------------------------------------------------------------------------------------------
Lamar Advertising Co.,* 80,000 2,347,200
- -----------------------------------------------------------------------------------------------------
Meredith Corp. 30,000 1,385,100
- -----------------------------------------------------------------------------------------------------
New York Times Co., "A" 55,000 2,390,300
- -----------------------------------------------------------------------------------------------------
$8,490,050
- -----------------------------------------------------------------------------------------------------
Railroad & Shipping - 1.4%
- -----------------------------------------------------------------------------------------------------
CSX Corp. 65,000 $1,901,250
- -----------------------------------------------------------------------------------------------------
Kansas City Southern* 110,000 1,217,700
- -----------------------------------------------------------------------------------------------------
$3,118,950
- -----------------------------------------------------------------------------------------------------
Real Estate - 3.1%
- -----------------------------------------------------------------------------------------------------
American Financial Realty Trust 70,000 $987,000
- -----------------------------------------------------------------------------------------------------
Boston Properties, Inc. 25,000 1,086,750
- -----------------------------------------------------------------------------------------------------
Entertainment Properties Trust 30,000 900,000
- -----------------------------------------------------------------------------------------------------
iStar Financial, Inc. 49,000 1,908,550
- -----------------------------------------------------------------------------------------------------
Maguire Properties, Inc. 50,000 1,025,000
- -----------------------------------------------------------------------------------------------------
MeriStar Hospitality Corp. 156,200 1,105,896
- -----------------------------------------------------------------------------------------------------
$7,013,196
- -----------------------------------------------------------------------------------------------------
Restaurants - 2.6%
- -----------------------------------------------------------------------------------------------------
ARAMARK Corp.* 45,000 $1,126,350
- -----------------------------------------------------------------------------------------------------
Brinker International, Inc.* 40,000 1,334,400
- -----------------------------------------------------------------------------------------------------
Darden Restaurants, Inc. 89,000 1,691,000
- -----------------------------------------------------------------------------------------------------
Wendy's International, Inc. 55,000 1,776,500
- -----------------------------------------------------------------------------------------------------
$5,928,250
- -----------------------------------------------------------------------------------------------------
Specialty Chemicals - 1.6%
- -----------------------------------------------------------------------------------------------------
Georgia Gulf Corp. 75,000 $1,751,250
- -----------------------------------------------------------------------------------------------------
Praxair, Inc. 30,000 1,858,500
- -----------------------------------------------------------------------------------------------------
$3,609,750
- -----------------------------------------------------------------------------------------------------
Specialty Stores - 2.1%
- -----------------------------------------------------------------------------------------------------
Foot Locker, Inc. 70,000 $1,134,000
- -----------------------------------------------------------------------------------------------------
Office Depot, Inc.* 130,000 1,826,500
- -----------------------------------------------------------------------------------------------------
Pier 1 Imports, Inc. 95,000 1,827,800
- -----------------------------------------------------------------------------------------------------
$4,788,300
- -----------------------------------------------------------------------------------------------------
Telecom - Wireline - 0.5%
- -----------------------------------------------------------------------------------------------------
Scientific-Atlanta, Inc. 37,800 $1,177,470
- -----------------------------------------------------------------------------------------------------
Telephone Services - 2.0%
- -----------------------------------------------------------------------------------------------------
CenturyTel, Inc. 9,200 $311,788
- -----------------------------------------------------------------------------------------------------
Cincinnati Bell, Inc.* 350,000 1,781,500
- -----------------------------------------------------------------------------------------------------
Citizens Communications Co.* 110,000 1,233,100
- -----------------------------------------------------------------------------------------------------
Commonwealth Telephone Enterprises, Inc.* 30,000 1,203,900
- -----------------------------------------------------------------------------------------------------
$4,530,288
- -----------------------------------------------------------------------------------------------------
Trucking - 1.2%
- -----------------------------------------------------------------------------------------------------
Swift Transportation, Inc.* 70,000 $1,588,300
- -----------------------------------------------------------------------------------------------------
Werner Enterprises, Inc. 50,000 1,145,500
- -----------------------------------------------------------------------------------------------------
$2,733,800
- -----------------------------------------------------------------------------------------------------
Utilities - Electric Power - 3.7%
- -----------------------------------------------------------------------------------------------------
Calpine Corp.* 250,300 $1,223,967
- -----------------------------------------------------------------------------------------------------
FirstEnergy Corp. 54,700 1,744,930
- -----------------------------------------------------------------------------------------------------
PG&E Corp.* 57,000 1,362,300
- -----------------------------------------------------------------------------------------------------
PPL Corp. 35,000 1,433,250
- -----------------------------------------------------------------------------------------------------
Reliant Resources, Inc.* 70,000 358,400
- -----------------------------------------------------------------------------------------------------
TXU Corp. 95,000 2,238,200
- -----------------------------------------------------------------------------------------------------
$8,361,047
- -----------------------------------------------------------------------------------------------------
Wireless Communications - 1.6%
- -----------------------------------------------------------------------------------------------------
Sprint Corp.-PCS Group* 284,600 $1,630,758
- -----------------------------------------------------------------------------------------------------
Telephone & Data Systems, Inc. 35,000 1,978,900
- -----------------------------------------------------------------------------------------------------
$3,609,658
- -----------------------------------------------------------------------------------------------------
Total U.S. Stocks $213,161,177
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 3.2%
- -----------------------------------------------------------------------------------------------------
Bermuda - 0.9%
- -----------------------------------------------------------------------------------------------------
Ace Ltd. (Insurance) 60,000 $1,984,800
- -----------------------------------------------------------------------------------------------------
Canada - 2.3%
- -----------------------------------------------------------------------------------------------------
Abitibi-Consolidated, Inc. (Forest & Paper Products) 200,000 $1,400,000
- -----------------------------------------------------------------------------------------------------
Magna International, Inc. (Automotive) 30,000 2,164,500
- -----------------------------------------------------------------------------------------------------
Talisman Energy, Inc. (Energy - Independent) 33,000 1,565,520
- -----------------------------------------------------------------------------------------------------
$5,130,020
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $7,114,820
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $206,337,414) $220,275,997
- -----------------------------------------------------------------------------------------------------
Convertible Bond - 0.5%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted)
- -----------------------------------------------------------------------------------------------------
American Tower Corp., 3.25s, 2010 (Wireless
Communications)## (Identified Cost $1,000,000) $1,000 $1,072,500
- -----------------------------------------------------------------------------------------------------
Convertible Preferred Stock - 0.3%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
UnumProvident Corp., 8.25% (Insurance)
(Identified Cost, $625,000) 25,000 $804,500
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $207,962,414) $222,152,997
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 1.0% 2,187,326
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $224,340,323
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
## SEC Rule 144A restriction.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -----------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets and liabilities
composing the total value of your fund.
AT 9/30/03
ASSETS
Investments, at value (identified cost, $207,962,414) $222,152,997
- -----------------------------------------------------------------------------------------------------
Cash 729
- -----------------------------------------------------------------------------------------------------
Receivable for fund shares sold 1,558,465
- -----------------------------------------------------------------------------------------------------
Receivable for investments sold 6,935,450
- -----------------------------------------------------------------------------------------------------
Dividends and interest receivable 233,356
- -----------------------------------------------------------------------------------------------------
Other assets 107
- -----------------------------------------------------------------------------------------------------
Total assets $230,881,104
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Notes payable $2,272,000
- -----------------------------------------------------------------------------------------------------
Payable for fund shares reacquired 78,176
- -----------------------------------------------------------------------------------------------------
Payable for investments purchased 4,181,834
- -----------------------------------------------------------------------------------------------------
Payable to affiliates
- -----------------------------------------------------------------------------------------------------
Management fee 4,597
- -----------------------------------------------------------------------------------------------------
Distribution and service fee 2,718
- -----------------------------------------------------------------------------------------------------
Reimbursement fee 1,456
- -----------------------------------------------------------------------------------------------------
Total liabilities $6,540,781
- -----------------------------------------------------------------------------------------------------
Net assets $224,340,323
- -----------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $214,490,639
- -----------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of
assets and liabilities in foreign currencies 14,190,620
- -----------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (4,353,873)
- -----------------------------------------------------------------------------------------------------
Accumulated net investment income 12,937
- -----------------------------------------------------------------------------------------------------
Total $224,340,323
- -----------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 20,945,408
- -----------------------------------------------------------------------------------------------------
Class A shares
Net assets $47,603,041
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,441,480
- -----------------------------------------------------------------------------------------------------
Net asset value per share $10.72
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$10.72) $11.37
- -----------------------------------------------------------------------------------------------------
Statement of Assets and Liabilities - continued
Class B shares
Net assets $65,799,080
- -----------------------------------------------------------------------------------------------------
Shares outstanding 6,202,621
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.61
- -----------------------------------------------------------------------------------------------------
Class C shares
Net assets $16,369,292
- -----------------------------------------------------------------------------------------------------
Shares outstanding 1,542,461
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.61
- -----------------------------------------------------------------------------------------------------
Class I shares
Net assets $93,944,127
- -----------------------------------------------------------------------------------------------------
Shares outstanding 8,700,336
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.80
- -----------------------------------------------------------------------------------------------------
Class R shares
Net assets $259,980
- -----------------------------------------------------------------------------------------------------
Shares outstanding 24,262
- -----------------------------------------------------------------------------------------------------
Net asset value, offering price, and redemption price
per share $10.72
- -----------------------------------------------------------------------------------------------------
Class 529A shares
Net assets $262,270
- -----------------------------------------------------------------------------------------------------
Shares outstanding 24,559
- -----------------------------------------------------------------------------------------------------
Net asset value per share $10.68
- -----------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$10.68) $11.33
- -----------------------------------------------------------------------------------------------------
Class 529B shares
Net assets $58,526
- -----------------------------------------------------------------------------------------------------
Shares outstanding 5,534
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.58
- -----------------------------------------------------------------------------------------------------
Class 529C shares
Net assets $44,007
- -----------------------------------------------------------------------------------------------------
Shares outstanding 4,155
- -----------------------------------------------------------------------------------------------------
Net asset value and offering price per share $10.59
- -----------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A and Class 529A shares are reduced. A
contingent deferred sales charge may be imposed on redemptions of Class A, Class B, Class C, Class
529A, Class 529B, and Class 529C shares.
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -----------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and
paid in expenses. It also describes any gains and/or losses generated by fund
operations.
FOR YEAR ENDED 9/30/03
NET INVESTMENT INCOME
Income
- -----------------------------------------------------------------------------------------------------
Dividends $1,973,986
- -----------------------------------------------------------------------------------------------------
Interest 108,541
- -----------------------------------------------------------------------------------------------------
Foreign taxes withheld (7,212)
- -----------------------------------------------------------------------------------------------------
Total investment income $2,075,315
- -----------------------------------------------------------------------------------------------------
Expenses
- -----------------------------------------------------------------------------------------------------
Management fee $1,074,270
- -----------------------------------------------------------------------------------------------------
Trustees' compensation 3,809
- -----------------------------------------------------------------------------------------------------
Shareholder servicing agent fee 152,071
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 125,765
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class B) 533,723
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class C) 134,210
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class R) 240
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529A) 500
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529B) 278
- -----------------------------------------------------------------------------------------------------
Distribution and service fee (Class 529C) 252
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529A) 357
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529B) 69
- -----------------------------------------------------------------------------------------------------
Program manager fee (Class 529C) 63
- -----------------------------------------------------------------------------------------------------
Administrative fee 13,858
- -----------------------------------------------------------------------------------------------------
Registration fees 91,790
- -----------------------------------------------------------------------------------------------------
Custodian fee 74,876
- -----------------------------------------------------------------------------------------------------
Transfer agent systems fee 65,161
- -----------------------------------------------------------------------------------------------------
Printing 64,036
- -----------------------------------------------------------------------------------------------------
Postage 22,010
- -----------------------------------------------------------------------------------------------------
Auditing fees 14,941
- -----------------------------------------------------------------------------------------------------
Legal fees 2,464
- -----------------------------------------------------------------------------------------------------
Miscellaneous 78,238
- -----------------------------------------------------------------------------------------------------
Total expenses $2,452,981
- -----------------------------------------------------------------------------------------------------
Fees paid indirectly (1,350)
- -----------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser (223,826)
- -----------------------------------------------------------------------------------------------------
Net expenses $2,227,805
- -----------------------------------------------------------------------------------------------------
Net investment loss $(152,490)
- -----------------------------------------------------------------------------------------------------
Statement of Operations - continued
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain (identified cost basis)
- -----------------------------------------------------------------------------------------------------
Investment transactions $1,335,337
- -----------------------------------------------------------------------------------------------------
Foreign currency transactions 20
- -----------------------------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions $1,335,357
- -----------------------------------------------------------------------------------------------------
Change in unrealized appreciation
- -----------------------------------------------------------------------------------------------------
Investments $30,152,554
- -----------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign
currencies 78
- -----------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign
currency translation $30,152,632
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency $31,487,989
- -----------------------------------------------------------------------------------------------------
Increase in net assets from operations $31,335,499
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- -----------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 9/30 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment loss $(152,490) $(95,717)
- -----------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and foreign
currency transactions 1,335,357 (5,695,996)
- -----------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign
currency translation 30,152,632 (15,921,474)
- ------------------------------------------------------------ ------------- --------------
Increase (decrease) in net assets from operations $31,335,499 $(21,713,187)
- ------------------------------------------------------------ ------------- --------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income
- -----------------------------------------------------------------------------------------------------
Class A $-- $(496)
- -----------------------------------------------------------------------------------------------------
Class I -- (1)
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions
- -----------------------------------------------------------------------------------------------------
Class A -- (826)
- -----------------------------------------------------------------------------------------------------
Class B -- (996)
- -----------------------------------------------------------------------------------------------------
Class C -- (368)
- -----------------------------------------------------------------------------------------------------
Class I -- (1)
- ------------------------------------------------------------ ------------- --------------
Total distributions declared to shareholders $-- $(2,688)
- ------------------------------------------------------------ ------------- --------------
Net increase in net assets from fund share transactions $106,583,101 $107,875,545
- ------------------------------------------------------------ ------------- --------------
Total increase in net assets $137,918,600 $86,159,670
- ------------------------------------------------------------ ------------- --------------
NET ASSETS
At beginning of period $86,421,723 $262,053
- -----------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment
income (loss) of $12,937 and $(160), respectively) $224,340,323 $86,421,723
- -----------------------------------------------------------------------------------------------------
See notes to financial statements.
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the past
5 years (or, if shorter, the period of the fund's operation). Certain information reflects financial results for
a single fund share. The total returns in the table represent the rate by which an investor would have earned
(or lost) on an investment in the fund (assuming reinvestment of all distributions) held for the entire period.
This information has been audited by the fund's independent auditors, whose report, together with the fund's
financial statements, are included in this report.
FOR YEARS ENDED 9/30
PERIOD ENDED
CLASS A 2003 2002 9/30/01*
Net asset value, beginning of period $8.56 $8.74 $10.00
- ---------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.01 $0.02 $0.02
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency 2.15 (0.20) (1.28)
- ----------------------------------------------------------- ------- -------- --------
Total from investment operations $2.16 $(0.18) $(1.26)
- ----------------------------------------------------------- ------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $(0.00)+++ $--
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions -- (0.00)+++ --
- ----------------------------------------------------------- ------- -------- --------
Total distributions declared to shareholders $-- $(0.00)+++ $--
- ----------------------------------------------------------- ------- -------- --------
Net asset value, end of period $10.72 $8.56 $8.74
- ----------------------------------------------------------- ------- -------- --------
Total return (%)(+) 25.23 (2.03) (12.60)++
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.34 1.37 1.00+
- ---------------------------------------------------------------------------------------------------------------
Net investment income 0.10 0.22 2.24+
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover 158 113 66
- ---------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $47,603 $26,013 $262
- ---------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a temporary expense
reimbursement agreement to pay all of the fund's operating expenses, exclusive of management and
distribution and service fees. In consideration, the fund pays the investment adviser a reimbursement fee
not greater than 0.25% of the average daily net assets. Prior to October 1, 2001, the distributor
contractually waived its fee for the period indicated. To the extent actual expenses were over this
limitation and the waiver had not been in place, the net investment loss per share and the ratios would have
been:
Net investment loss $(0.01) $(0.02) $(0.88)
- ---------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.50 1.83 120.50+
- ---------------------------------------------------------------------------------------------------------------
Net investment loss (0.06) (0.24) (117.26)+
- ---------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, August 31, 2001, through
September 30, 2001.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been
included, the results would have been lower.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS B 2003 9/30/02*
Net asset value, beginning of period $8.53 $9.24
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05) $(0.04)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.13 (0.67)
- ------------------------------------------------------------------ -------- ------
Total from investment operations $2.08 $(0.71)
- ------------------------------------------------------------------ -------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and foreign currency
transactions $-- $(0.00)+++
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.61 $8.53
- ------------------------------------------------------------------ -------- ------
Total return (%) 24.38 (7.67)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.99 2.02+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.54) (0.44)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $65,799 $44,390
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees. In consideration, the fund pays the investment
adviser a reimbursement fee not greater than 0.25% of the average daily net assets. To the extent
actual expenses were over this limitation and the waiver had not been in place, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.07) $(0.09)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.14 2.48+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.69) (0.90)+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class B shares, November 1, 2001, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS C 2003 9/30/02*
Net asset value, beginning of period $8.53 $9.24
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.05) $(0.04)
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.13 (0.67)
- ------------------------------------------------------------------ -------- ------
Total from investment operations $2.08 $(0.71)
- ------------------------------------------------------------------ -------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net realized gain on investments and foreign
currency transactions $-- $(0.00)+++
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.61 $8.53
- ------------------------------------------------------------------ -------- ------
Total return (%) 24.38 (7.67)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.99 2.02+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.54) (0.46)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $16,369 $11,348
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees. In consideration, the fund pays the investment
adviser a reimbursement fee not greater than 0.25% of the average daily net assets. To the extent
actual expenses were over this limitation and the waiver had not been in place, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.07) $(0.09)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.14 2.48+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.69) (0.92)+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class C shares, November 1, 2001, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS I 2003 9/30/02*
Net asset value, beginning of period $8.59 $9.24
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income(S) $0.04 $0.06
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.17 (0.71)
- ------------------------------------------------------------------ -------- ------
Total from investment operations $2.21 $(0.65)
- ------------------------------------------------------------------ -------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income $-- $(0.00)+++
- -----------------------------------------------------------------------------------------------------
From net realized gain on investments and foreign
currency transactions -- (0.00)+++
- ------------------------------------------------------------------ -------- ------
Total distributions declared to shareholders $-- $(0.00)+++
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.80 $8.59
- ------------------------------------------------------------------ -------- ------
Total return (%) 25.58 (6.89)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.00 1.02+
- -----------------------------------------------------------------------------------------------------
Net investment income 0.43 0.99+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $93,944 $4,655
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management fees. In consideration, the fund pays the investment adviser a reimbursement fee not
greater than 0.25% of the average daily net assets. To the extent actual expenses were over this
limitation and the waiver had not been in place, the net investment income per share and the
ratios would have been:
Net investment income $0.03 $0.03
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.16 1.48+
- -----------------------------------------------------------------------------------------------------
Net investment income 0.27 0.53+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class I shares, November 1, 2001, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
Financial Highlights - continued
PERIOD ENDED
CLASS R 9/30/03*
Net asset value, beginning of period $9.16
- ----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.00)+++
- ----------------------------------------------------------------------------
Net realized and unrealized gain on investments and
foreign currency 1.56++++
- ----------------------------------------------------------------------------
Total from investment operations $1.56
- ----------------------------------------------------------------------------
Net asset value, end of period $10.72
- ----------------------------------------------------------------------------
Total return (%) 17.03++
- ----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.49+
- ----------------------------------------------------------------------------
Net investment loss (0.06)+
- ----------------------------------------------------------------------------
Portfolio turnover 158
- ----------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $260
- ----------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually
agreed under a temporary expense reimbursement agreement to pay all of the
fund's operating expenses, exclusive of management and distribution and
service fees. In consideration, the fund pays the investment adviser a
reimbursement fee not greater than 0.25% of the average daily net assets.
To the extent actual expenses were over this limitation and the waiver had
not been in place, the net investment loss per share and the ratios would
have been:
Net investment loss $(0.02)
- ----------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
Expenses## 1.65+
- ----------------------------------------------------------------------------
Net investment loss (0.22)+
- ----------------------------------------------------------------------------
* For the period from the inception of the Class R shares, December 31,
2002, through
September 30, 2003.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
++++ The per share amount is not in accordance with the net realized and
unrealized gain/loss for the period because of the timing of sales of fund
shares and the amount of per share realized and unrealized gains and
losses at such time.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset
arrangements.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS 529A 2003 9/30/02*
Net asset value, beginning of period $8.55 $9.25
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.02) $0.01
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.15 (0.71)
- -----------------------------------------------------------------------------------------------------
Total from investment operations $2.13 $(0.70)
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.68 $8.55
- ------------------------------------------------------------------ -------- ------
Total return (%)(+) 24.91 (7.47)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 1.59 1.62+
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18) 0.50+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $262 $7
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees. In consideration, the fund pays the investment
adviser a reimbursement fee not greater than 0.50% of the average daily net assets. To the extent
actual expenses were over this limitation and the waiver had not been in place, the net investment
income (loss) per share and the ratios would have been:
Net investment income (loss) $(0.03) $0.00+++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 1.75 2.08+
- -----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.34) 0.04+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class 529A shares, July 31, 2002, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
(+) Total returns for Class 529A shares do not include the applicable sales charge. If the charge had
been included, the results would have been lower.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS 529B 2003 9/30/02*
Net asset value, beginning of period $8.52 $9.22
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.00)+++
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.14 (0.70)
- ------------------------------------------------------------------ -------- ------
Total from investment operations $2.06 $(0.70)
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.58 $8.52
- ------------------------------------------------------------------ -------- ------
Total return (%) 24.18 (7.49)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.24 2.27+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.82) (0.20)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $59 $5
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees. In consideration, the fund pays the investment
adviser a reimbursement fee not greater than 0.50% of the average daily net assets. To the extent
actual expenses were over this limitation and the waiver had not been in place, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.40 2.73+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.98) (0.66)+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class 529B shares, July 31, 2002, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
Financial Highlights - continued
FOR YEAR ENDED 9/30
PERIOD ENDED
CLASS 529C 2003 9/30/02*
Net asset value, beginning of period $8.52 $9.23
- -----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment loss(S) $(0.08) $(0.00)+++
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency 2.15 (0.71)
- ------------------------------------------------------------------ -------- ------
Total from investment operations $2.07 $(0.71)
- ------------------------------------------------------------------ -------- ------
Net asset value, end of period $10.59 $8.52
- ------------------------------------------------------------------ -------- ------
Total return (%) 24.30 (7.59)++
- -----------------------------------------------------------------------------------------------------
RATIOS (%) TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA(S):
Expenses## 2.24 2.27+
- -----------------------------------------------------------------------------------------------------
Net investment loss (0.85) (0.20)+
- -----------------------------------------------------------------------------------------------------
Portfolio turnover 158 113
- -----------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $44 $5
- -----------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser contractually agreed under a
temporary expense reimbursement agreement to pay all of the fund's operating expenses, exclusive
of management and distribution and service fees. In consideration, the fund pays the investment
adviser a reimbursement fee not greater than 0.50% of the average daily net assets. To the extent
actual expenses were over this limitation and the waiver had not been in place, the net investment
loss per share and the ratios would have been:
Net investment loss $(0.10) $(0.01)
- -----------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 2.40 2.73+
- -----------------------------------------------------------------------------------------------------
Net investment loss (1.01) (0.66)+
- -----------------------------------------------------------------------------------------------------
* For the period from the inception of the Class 529C shares, July 31, 2002, through
September 30, 2002.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01.
# Per share data are based on average shares outstanding.
## Ratios do not reflect expense reductions from certain expense offset arrangements.
See notes to financial statements.
- -------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
MFS Mid Cap Value Fund (the fund) is a diversified series of MFS Series Trust
XI (the trust). The trust is organized as a Massachusetts business trust and
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The fund can invest in foreign securities.
Investments in foreign securities are vulnerable to the effects of changes in
the relative values of the local currency and the U.S. dollar and to the
effects of changes in each country's legal, political, and economic
environment.
INVESTMENT VALUATIONS - Equity securities in the fund's portfolio for which
market quotations are available are valued at the last sale or official
closing price on the primary market or exchange on which they are primarily
traded or at the last quoted bid price for securities in which there were no
sales during the day. If no sales are reported, as is the case for most
securities traded over the counter, securities are valued on the basis of
quotations obtained from brokers and dealers or on the basis of valuations
furnished by a pricing service. Bonds and other fixed income securities (other
than short-term obligations) in the fund's portfolio are valued at an
evaluated bid price on the basis of quotes from brokers and dealers or on the
basis of valuations furnished by a pricing service. Prices obtained from
pricing services utilize both dealer-supplied valuations and electronic data
processing techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data without exclusive reliance upon quoted prices or exchange or over-the-
counter prices, since such valuations are believed to reflect more accurately
the fair value of such securities. Short-term obligations in the fund's
portfolio are valued at amortized cost, which constitutes fair value as
determined by the Board of Trustees. Short-term obligations with a remaining
maturity in excess of 60 days will be valued upon dealer-supplied valuations.
Portfolio investments for which market quotations are not readily available,
or whose values have been materially affected by events occurring after the
close of their primary markets, are valued at fair value as determined in good
faith by or at the direction of the Board of Trustees.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases
and sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates
of such transactions. Gains and losses attributable to foreign currency
exchange rates on sales of securities are recorded for financial statement
purposes as net realized gains and losses on investments. Gains and losses
attributable to foreign exchange rate movements on income and expenses are
recorded for financial statement purposes as foreign currency transaction
gains and losses. That portion of both realized and unrealized gains and
losses on investments that results from fluctuations in foreign currency
exchange rates is not separately disclosed.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on
the trade date. Interest income is recorded on the accrual basis. All premium
and discount is amortized or accreted for financial statement purposes in
accordance with accounting principles generally accepted in the United States
of America. All discount is accreted for tax reporting purposes as required by
federal income tax regulations. Dividends received in cash are recorded on the
ex-dividend date.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by
the fund. This amount is shown as a reduction of total expenses on the
Statement of Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the
financial statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, real estate investment trusts, wash
sales, capital losses, and amortization and accretion on debt securities.
The tax character of distributions declared for the years ended
September 30, 2003 and September 30, 2002 was as follows:
9/30/03 9/30/02
Distributions declared from:
- -------------------------------------------------------------------------------
Ordinary income $-- $2,688
- -------------------------------------------------------------------------------
During the year ended September 30, 2003, accumulated net investment loss
decreased by $165,587, accumulated net realized loss on investments and
foreign currency transactions decreased by $5,252, and paid-in capital
decreased by $170,839 due to differences between book and tax accounting for
currency transactions, net investment losses, and real estate investment
trusts. This change had no effect on the net assets or net asset value per
share.
As of September 30, 2003, the components of distributable earnings
(accumulated losses) on a tax basis were as follows:
Undistributed ordinary income $--
------------------------------------------------------------------
Undistributed long-term capital gain --
------------------------------------------------------------------
Capital loss carryforward (3,393,827)
------------------------------------------------------------------
Post-October capital loss deferral (522,508)
------------------------------------------------------------------
Unrealized appreciation 13,766,019
------------------------------------------------------------------
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the
earlier of its utilization or expiration on September 30, 2011, ($3,387,367)
and September 30, 2010, ($6,460).
MULTIPLE CLASSES OF SHARES OF BENEFICIAL INTEREST - The fund offers multiple
classes of shares, which differ in their respective distribution and service
fees. All shareholders bear the common expenses of the fund based on daily net
assets of each class, without distinction between share classes. Dividends are
declared separately for each class. Differences in per share dividend rates
are generally due to differences in separate class expenses. Class B and Class
529B shares will convert to Class A and Class 529A shares, respectively
approximately eight years after purchase.
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with
Massachusetts Financial Services Company (MFS) to provide overall investment
advisory and administrative services, and general office facilities. The
management fee is computed daily and paid monthly at an annual rate of 0.75%
the fund's average daily net assets.
The fund has a temporary expense reimbursement agreement whereby MFS has
voluntarily agreed to pay all of the fund's operating expenses, exclusive of
management, distribution, and service fees. The fund in turn will pay MFS an
expense reimbursement fee not greater than 0.25% of average daily net assets
for Class A, Class B, Class C, Class I and Class R, and not greater than 0.50%
of average daily net assets for Class 529A, Class 529B and Class 529C. To the
extent that the expense reimbursement fee exceeds the fund's actual expenses,
the excess will be applied to amounts paid by MFS in prior years. At September
30, 2003, aggregate unreimbursed expenses amounted to $445,904.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and pays no compensation directly to
its Trustees who are officers of the investment adviser, or to officers of the
fund, all of whom receive remuneration for their services to the fund from MFS.
Certain officers and Trustees of the fund are officers or directors of MFS, MFS
Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC). The fund
has an unfunded, defined benefit plan for inactive Trustees.
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
not to exceed the following annual percentage rates of the fund's average
daily net assets:
First $2 billion 0.0175%
----------------------------------------------------------------
Next $2.5 billion 0.0130%
----------------------------------------------------------------
Next $2.5 billion 0.0005%
----------------------------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, received
$33,710 and $156 for the year ended September 30, 2003, as its portion of the
sales charge on sales of Class A and Class 529A shares of the fund,
respectively.
The Trustees have adopted a distribution plan for Class A, Class B, Class C,
Class R, Class 529A, Class 529B and Class 529C shares pursuant to Rule 12b-1
of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share
classes in order that MFD may pay expenses on behalf of the fund related to
the distribution and servicing of its shares. These expenses include a service
fee paid to each securities dealer that enters into a sales agreement with MFD
based on the average daily net assets of accounts attributable to such
dealers. These fees are calculated based on each class' average daily net
assets. The maximum distribution and service fees for each class of shares are
as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Distribution Fee 0.10% 0.75% 0.75% 0.25% 0.25% 0.75% 0.75%
- --------------------------------------------------------------------------------------------------------------------------
Service Fee 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
- --------------------------------------------------------------------------------------------------------------------------
Total Distribution
Plan 0.35% 1.00% 1.00% 0.50% 0.50% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
MFD retains the service fee for accounts not attributable to a securities dealer, which for the year ended September 30,
2003, amounted to:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Service Fee Retained
by MFD $3,348 $180 $520 $-- $314 $2 $9
- --------------------------------------------------------------------------------------------------------------------------
Payment of the 0.15% per annum portion of the Class 529A distribution fee that is not currently being charged will be
implemented on such a date as the Trustees of the trust may determine.
Fees incurred under the distribution plan during the year ended September 30, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS R CLASS 529A CLASS 529B CLASS 529C
Effective Annual
Percentage Rate 0.35% 1.00% 1.00% 0.50% 0.35% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------
Certain Class A, Class C and Class 529C shares are subject to a contingent
deferred sales charge in the event of a shareholder redemption within, for
Class A shares, 12 months following the purchase, and, for Class C and 529C
shares, the first year from the end of the calendar month of purchase. A
contingent deferred sales charge is imposed on shareholder redemptions of
Class B and Class 529B shares in the event of a shareholder redemption within
six years from the end of the calendar month of purchase. MFD receives all
contingent deferred sales charges. Contingent deferred sales charges imposed
during the year ended September 30, 2003, were as follows:
CLASS A CLASS B CLASS C CLASS 529B CLASS 529C
Contingent Deferred
Sales Charges Imposed $451 $124,418 $2,831 $-- $--
- -------------------------------------------------------------------------------
The fund has and may from time to time enter into contracts with program
managers and other parties which administer the tuition programs through which
an investment in the fund's 529 share classes is made. The fund has entered
into an agreement with MFD pursuant to which MFD receives an annual fee of up
to 0.35% from the fund based solely upon the value of the fund's 529 share
classes attributable to tuition programs to which MFD or a third party which
contracts with MFD provides administrative services. The current fee has been
established at 0.25% annually of average net assets of the fund's 529 share
classes attributable to such programs. The fee may only be increased with the
approval of the board of trustees that oversees the fund. The services provided
by MFD or a third party with which MFD contracts include recordkeeping and tax
reporting and account services, as well as services designed to maintain the
program's compliance with the Internal Revenue Code and other regulatory
requirements.
SHAREHOLDER SERVICING AGENT - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as
a percentage of the fund's average daily net assets at an annual rate of
0.11%. Prior to April 1, 2003, the fee was 0.10% of the fund's average daily
net assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated
$329,625,794 and $224,839,378, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are
as follows:
Aggregate cost $208,387,015
------------------------------------------------------------------
Gross unrealized appreciation $17,978,129
------------------------------------------------------------------
Gross unrealized depreciation (4,212,147)
------------------------------------------------------------------
Net unrealized appreciation $13,765,982
------------------------------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 9/30/03 Year ended 9/30/02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Shares sold 7,729,510 $72,633,949 3,975,526 $41,434,909
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 122 1,246
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (6,327,259) (58,671,983) (966,419) (9,293,790)
- -----------------------------------------------------------------------------------------------------------
Net increase 1,402,251 $13,961,966 3,009,229 $32,142,365
- -----------------------------------------------------------------------------------------------------------
CLASS B SHARES
Shares sold 3,135,446 $30,018,328 6,936,034 $72,575,702
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 80 817
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (2,139,454) (20,013,505) (1,729,485) (16,319,351)
- -----------------------------------------------------------------------------------------------------------
Net increase 995,992 $10,004,823 5,206,629 $56,257,168
- -----------------------------------------------------------------------------------------------------------
CLASS C SHARES
Shares sold 1,683,023 $16,160,057 1,813,190 $19,164,079
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 180 1,703
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (1,471,064) (14,015,030) (482,868) (4,695,860)
- -----------------------------------------------------------------------------------------------------------
Net increase 211,959 $2,145,027 1,330,502 $14,469,922
- -----------------------------------------------------------------------------------------------------------
CLASS I SHARES
Shares sold 8,266,066 $80,956,728 555,046 $5,111,197
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 0+ 2
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (107,371) (1,041,371) (13,405) (123,284)
- -----------------------------------------------------------------------------------------------------------
Net increase 8,158,695 $79,915,357 541,641 $4,987,915
- -----------------------------------------------------------------------------------------------------------
Period ended 9/30/03***
SHARES AMOUNT
CLASS R SHARES
Shares sold 34,114 $356,139
- -----------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- --
- -----------------------------------------------------------------------
Shares reacquired (9,852) (102,385)
- -----------------------------------------------------------------------
Net increase 24,262 $253,754
- -----------------------------------------------------------------------
Year ended 9/30/03 Period ended 9/30/02**
SHARES AMOUNT SHARES AMOUNT
CLASS 529A SHARES
Shares sold 23,852 $224,292 812 $7,575
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (105) (944) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 23,747 $223,348 812 $7,575
- -----------------------------------------------------------------------------------------------------------
CLASS 529B SHARES
Shares sold 4,971 $46,623 585 $5,396
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (22) (202) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 4,949 $46,421 585 $5,396
- -----------------------------------------------------------------------------------------------------------
CLASS 529C SHARES
Shares sold 3,666 $33,177 569 $5,305
- -----------------------------------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- (5) (101)
- -----------------------------------------------------------------------------------------------------------
Shares reacquired (75) (772) -- --
- -----------------------------------------------------------------------------------------------------------
Net increase 3,591 $32,405 564 $5,204
- -----------------------------------------------------------------------------------------------------------
* For the period from the inception of Class B, C, and I shares, November 1, 2001, through September 30,
2002.
** For the period from the inception of Class 529A, 529B, and 529C shares, July 31, 2002, through September
30, 2002.
*** For the period from the inception of Class R shares, December 31, 2002, through September 30, 2003.
+ Number of shares was less than one.
(6) LINE OF CREDIT
The fund and other affiliated funds participate in an $800 million unsecured
line of credit provided by a syndication of banks under a line of credit
agreement. Borrowings may be made for temporary financing needs. Interest is
charged to each fund, based on its borrowings, at a rate equal to the bank's
base rate. A commitment fee of $1,116 which is based on the average daily
unused portion of the line of credit is included in miscellaneous expense. The
fund had no significant borrowings during the year.
(7) FINANCIAL INSTRUMENTS
The fund trades financial instruments with off-balance-sheet risk in the
normal course of its investing activities in order to manage exposure to
market risks such as interest rates and foreign currency exchange rates. These
financial instruments include written options, forward foreign currency
exchange contracts, swap agreements, and futures contracts. The notional or
contractual amounts of these instruments represent the investment the fund has
in particular classes of financial instruments and does not necessarily
represent the amounts potentially subject to risk. The measurement of the
risks associated with these instruments is meaningful only when all related
and offsetting transactions are considered.
There were no outstanding financial instruments with off-balance-sheet risk at
the end of the period.
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------------------
To the Trustees of MFS Series Trust XI and Shareholders of
MFS Mid Cap Value Fund:
We have audited the accompanying statement of assets and liabilities of MFS
Mid Cap Value Fund (the Fund) (one of the portfolios constituting MFS Series
Trust XI), including the portfolio of investments, as of September 30, 2003,
the related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our
procedures included confirmation of securities owned at September 30, 2003, by
correspondence with the custodian and brokers or by other appropriate auditing
procedures where replies from brokers were not received. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of MFS
Mid Cap Value Fund at September 30, 2003, the results of its operations for
the year then ended, the changes in its net assets for each of the two years
in the period then ended, and its financial highlights for each of the periods
indicated therein, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
November 7, 2003
- --------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust XI,
of which the fund is a series, including their principal occupations, which, unless specific dates are
shown, are of more than five years' duration, although the titles may not have been the same throughout.
Name, age, position with the Trust, principal occupation, and other directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) ABBY M. O'NEILL (born 04/27/28)
Chairman Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services,
Inc. (investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Executive Officer
Trustee and President
Massachusetts Financial Services Company, Chief LAWRENCE T. PERERA (born 06/23/35)
Executive Officer and Director Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59)
Trustee WILLIAM J. POORVU (born 04/10/35)
Massachusetts Financial Services Company, Trustee
President, Chief Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of 1961
INDEPENDENT TRUSTEES Adjunct Professor in Entrepreneurship Emeritus;
CBL & Associates Properties, Inc. (real estate
LAWRENCE H. COHN, M.D. (born 03/11/37) investment trust), Director
Trustee
Brigham and Women's Hospital, Chief of Cardiac J. DALE SHERRATT (born 09/23/38)
Surgery; Harvard Medical School, Professor of Trustee
Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) (investor in health care companies), Managing
Trustee General Partner (since 1993); Cambridge
Private investor and real estate consultant; Nutraceuticals (professional nutritional
Capitol Entertainment Management Company (video products), Chief Executive Officer (until May
franchise), Vice Chairman 2001)
J. ATWOOD IVES (born 05/01/36) ELAINE R. SMITH (born 04/25/46)
Trustee Trustee
Private investor; KeySpan Corporation (energy Independent health care industry consultant
related services), Director; Eastern Enterprises
(diversified services company), Chairman, Trustee WARD SMITH (born 09/13/30)
and Chief Executive Officer (until November 2000) Trustee
Private investor
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission
(i.e., "public companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the
1940 Act) which is the principal federal law governing investment companies like the Trust. The address of MFS
is 500 Boylston Street, Boston, Massachusetts 02116.
Trustees and Officers - continued
OFFICERS
JOHN W. BALLEN (born 09/12/59) ROBERT R. FLAHERTY (born 09/18/63)
Trustee and President Assistant Treasurer
Massachusetts Financial Services Company, Chief Massachusetts Financial Services Company, Vice
Executive Officer and Director President (since August 2000); UAM Fund Services,
Senior Vice President (prior to August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59)
Assistant Secretary and Assistant Clerk RICHARD M. HISEY (born 08/29/58)
Massachusetts Financial Services Company, Senior Treasurer
Vice President and Associate General Counsel Massachusetts Financial Services Company, Senior
Vice President (since July 2002); The Bank of New
STEPHEN E. CAVAN (born 11/06/53) York, Senior Vice President (September 2000 to
Secretary and Clerk July 2002); Lexington Global Asset Managers, Inc.,
Massachusetts Financial Services Company, Senior Executive Vice President and Chief Financial
Vice President, General Counsel and Secretary Officer (prior to September 2000); Lexington
Funds, Treasurer (prior to September 2000)
STEPHANIE A. DESISTO (born 10/01/53)
Assistant Treasurer ELLEN MOYNIHAN (born 11/13/57)
Massachusetts Financial Services Company, Vice Assistant Treasurer
President (since April 2003); Brown Brothers Massachusetts Financial Services Company, Vice
Harriman & Co., Senior Vice President (November President
2002 to April 2003); ING Groep N.V./Aeltus
Investment Management, Senior Vice President JAMES O. YOST (born 06/12/60)
(prior to November 2002) Assistant Treasurer
Massachusetts Financial Services Company, Senior
Vice President
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not
elected for fixed terms. This means that each Trustee will be elected to hold office until his or her
successor is chosen and qualified or until his or her earlier death, resignation, retirement or removal. Each
officer will hold office until his or her successor is chosen and qualified, or until he or she retires,
resigns or is removed from office.
Messrs. Shames and Gutow, have served in their capacity as Trustee of the Trust continuously since originally
elected or appointed. Messrs. Ballen, Cohn, Ives, Perera, Poorvu, Sherratt, and Smith, and Mses. O'Neill and
Smith, were elected by shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke
has served as a Trustee of the Trust since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or
a subsidiary is the investment adviser or distributor and, in the case of the officers, with certain
affiliates of MFS. Each Trustee serves as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available
without charge upon request, by calling 1-800-225-2606.
- -------------------------------------------------------------------------------------------------------------
INVESTMENT ADVISER CUSTODIANS
Massachusetts Financial Services Company State Street Bank and Trust Company
500 Boylston Street, Boston, MA 225 Franklin Street, Boston, MA
02116-3741 02110
DISTRIBUTOR JP Morgan Chase Manhattan Bank
MFS Fund Distributors, Inc. One Chase Manhattan Plaza
500 Boylston Street, Boston, MA New York, NY 10081
02116-3741
AUDITORS
PORTFOLIO MANAGER Ernst & Young LLP
Constantinos G. Mokas(1)
(1) MFS Investment Management
- -------------------------------------------------------------------------------
MONEY MANAGEMENT FOR ALL TYPES OF INVESTORS
- -------------------------------------------------------------------------------
YOUR GOALS ARE IMPORTANT
MFS offers a complete range of investments and investment services to address
specific financial needs over time. When your investing goals change, you can
easily stay with MFS for the products you need, when you need them. Whether
you're investing for college or retirement expenses or for tax management or
estate planning, MFS will be there.
Ask your investment professional how MFS can help you move toward the goals
you've set.
MFS FAMILY OF FUNDS(R)
More than 50 portfolios offer domestic and international
equity and fixed-income investment across the full risk
spectrum
VARIABLE ANNUITIES
A selection of annuity products with advantages for
building and preserving wealth
MFS 401(k) AND IRA SUITES
Retirement plans for businesses and individuals
MFS COLLEGE SAVINGS PLANS
Investment products to help meet education expenses
MFS PRIVATE PORTFOLIO SERVICES
Investment advisory services that provide custom products
for high-net-worth individuals
You can obtain a prospectus for any MFS product from your investment
professional. The prospectus contains complete information on the fees and
risks associated with investing. Read the prospectus carefully before
investing or sending money.
Variable annuities are offered through MFS/Sun Life Financial Distributors,
Inc.
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (UNAUDITED)
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends
paid deduction from earnings and profits distributed to shareholders upon
redemption of shares.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CONTACT INFORMATION
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
For information on MFS mutual funds, call your investment professional or, for
an information kit, call toll free: 1-800-225-2606 any business day from
8 a.m. to 8 p.m. Eastern time.
A general description of the MFS Funds proxy voting policies is available
without charge, upon request, by calling 1-800-225-2606, by visiting the About
MFS section of mfs.com or by visiting the SEC's website at http://www.sec.
gov.
INVESTOR SERVICE
Write to us at: MFS Service Center, Inc.
P.O. Box 2281
Boston, MA 02107-9906
Type of Information Phone number Hours, Eastern Time
- --------------------------------------------------------------------------------
General information 1-800-225-2606 8 a.m. to 8 p.m., any
business day
- --------------------------------------------------------------------------------
Speech- or hearing-impaired 1-800-637-6576 9 a.m. to 5 p.m., any
business day
- --------------------------------------------------------------------------------
Shares prices, account 1-800-MFS-TALK
balances exchanges (1-800-637-8255) 24 hours a day,
or stock and bond outlooks touch-tone required 365 days a year
- --------------------------------------------------------------------------------
WORLD WIDE WEB
Go to WWW.MFS.COM for a clear view of market events, investor education,
account access, and product and performance insights.
Go paperless with EDELIVERY: Join your fellow shareholders who are already
taking advantage of this great new benefit from MFS. With eDelivery, we send
you prospectuses, reports, and proxies electronically. You get timely
information without mailbox clutter (and help your fund save printing and
postage costs).
SIGN-UP instructions: If your account is registered with us, go to
www.mfs.com, log in to your account via MFS Access, and select the eDelivery
sign up options.
If you own your MFS fund shares through a financial institution or through a
retirement plan, MFS Talk, MFS Access, and eDelivery may not be available
to you.
[logo] M F S(R)
INVESTMENT MANAGEMENT
500 Boylston Street
Boston, MA 02116-3741
(C) 2003 MFS Investment Management(R)
MFS(R) investment products are offered through MFS Fund Distributors, Inc.
500 Boylston Street, Boston, MA 02116
MDV-ANN-11/03 31M
MFS(R) Mutual Funds
ANNUAL REPORT 9/30/03
VERTEX(SM) INTERNATIONAL FUND
[logo] M F S(R)
INVESTMENT MANAGEMENT
VERTEX(SM) INTERNATIONAL FUND
The fund seeks capital appreciation.
- -------------------------------------------------------------------------------
MFS(R) PRIVACY POLICY: A COMMITMENT TO YOU
- -------------------------------------------------------------------------------
Privacy is a concern for every investor today. At MFS Investment Management(R)
and the MFS funds, we take this concern very seriously. We want you to
understand our policies about every MFS investment product and service that we
offer and how we protect the nonpublic personal information of investors who
have a direct relationship with us and our wholly owned subsidiaries.
Throughout our business relationship, you provide us with personal information;
we maintain information and records about you, your investments, and the
services you use. Examples of the nonpublic personal information we maintain
include
o data from investment applications and other forms
o share balances and transactional history with us, our affiliates, or others
o facts from a consumer reporting agency
We do not disclose any nonpublic personal information about our customers or
former customers to anyone except as permitted by law. We may share information
with companies or financial institutions that perform marketing services on our
behalf or to other financial institutions with which we have joint marketing
arrangements.
Access to your nonpublic personal information is limited to appropriate
personnel who provide products, services, or information to you. We maintain
physical, electronic, and procedural safeguards that comply with applicable
federal regulations.
If you have any questions about MFS' privacy policy, please call 1-800-225-2606
any business day between 8 a.m. and 8 p.m. Eastern time.
Note: If you own MFS products or receive MFS services in the name of a third
party such as a bank or broker-dealer, their privacy policy may apply to you
instead of ours.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------
MFS PRIVACY POLICY
- ----------------------------------------------------
MANAGEMENT REVIEW 1
- ----------------------------------------------------
PERFORMANCE SUMMARY 2
- ----------------------------------------------------
PORTFOLIO OF INVESTMENTS 4
- ----------------------------------------------------
FINANCIAL STATEMENTS 8
- ----------------------------------------------------
NOTES TO FINANCIAL STATEMENTS 12
- ----------------------------------------------------
INDEPENDENT AUDITORS' REPORT 16
- ----------------------------------------------------
FEDERAL TAX INFORMATION 17
- ----------------------------------------------------
TRUSTEES AND OFFICERS 18
- -------------------------------------------------------------------------------
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MANAGEMENT REVIEW
- -------------------------------------------------------------------------------
Dear Shareholders,
The start of the period was marked by a continuation of a three-year-long bear
market that plagued investors around the world. Over the last several months of
the period, however, stocks around the world began to rebound and post strong
gains. International investors seemed encouraged by improving corporate
fundamentals, better earnings reports, and a belief that the global economy was
staged for recovery.
Approximately half the fund is managed as a long fund that relies on the best
ideas of a team of MFS research analysts. The balance of the fund is managed as
a long/short portfolio that seeks to provide capital appreciation through three
major types of holdings: long positions, short positions, and "pair trades." A
pair trade combines two stocks in the same industry: a long position in a
company that we think is an industry leader and will outperform the market and a
short position in a company that we feel will underperform.
DETRACTORS FROM PERFORMANCE
The biggest contributors to underperformance relative to the benchmark (the
Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East)
Index) were the short positions in the long/short segment of the portfolio.
These positions, which look for stocks to go down, tend to underperform during a
period of general improvement in the stock market. In particular, we were harmed
by short positions in Japanese financial services companies such as UFJ
Holdings. The Japanese financial services industry experienced a significant
rally over the last six months of the period.
The portfolio also had a sizable cash position that detracted from relative
performance. The cash in the portfolio had increased as we limited the number of
short and pair trades during the period and looked for future opportunities in
these areas.
In the long or "best ideas" portion of the fund, performance relative to the
benchmark was hurt primarily by our underweight positions in the utilities &
communications and financial services sectors, which performed well over the
period. Both sectors, however, contributed positive absolute returns to the
portfolio.
CONTRIBUTORS TO PERFORMANCE
Top contributors to performance were found in the long or "best ideas" portion
of the portfolio. The sectors that contributed most positively to the portfolio
were energy and industrial goods & services. In energy, the portfolio benefited
from its stock selection and from a generally positive environment for many oil
and natural gas companies, while we were able to avoid those companies in the
sector that did not perform as well over the period.
FUND TERMINATING
The Board of Trustees which oversees the Vertex International Fund decided at
its meeting on November 20, 2003 to terminate the fund on or about December 5,
2003.
Respectfully,
/s/ David R. Mannheim
David R. Mannheim
Portfolio Manager
The opinions expressed in this report are those of the portfolio manager and are
current only through the end of the period of the report as stated on the cover.
These views are subject to change at any time based on market and other
conditions, and no forecasts can be guaranteed.
The portfolio is actively managed, and current holdings may be different.
- -------------------------------------------------------------------------------
PERFORMANCE SUMMARY THROUGH 9/30/03
- -------------------------------------------------------------------------------
Currently, the fund offers Class A shares, which are available for purchase at
net asset value only by residents of the Commonwealth of Massachusetts who are
employees (or certain relatives of employees) of MFS and its affiliates or
members of the governing boards of the various funds sponsored by MFS.
The following information illustrates the historical performance of the fund's
Class A shares in comparison to its benchmark. Performance results include the
deduction of the maximum applicable sales charge and reflect the percentage
change in net asset value, including the reinvestment of any dividends and
capital gains distributions. Benchmark comparisons are unmanaged and do not
reflect any fees or expenses. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE
RESULTS. (See Notes to Performance Summary.)
GROWTH OF A HYPOTHETICAL $10,000 INVESTMENT
(For the period from the commencement of the fund's investment operations,
December 29, 2000, through September 30, 2003. Index information is from
January 2, 2001.)
Vertex International MSCI
Fund - Class A EAFE Index
-----------------------------------------------
12/00 $ 9,425 $10,000
9/01 9,925 7,365
9/02 9,038 6,241
9/03 9,904 7,898
TOTAL RETURNS
- --------------------
Average annual
without sales charge
- --------------------
Class
Share class inception date 1-yr Life*
- -----------------------------------------------------------------------------
A 12/29/2000 9.58% 1.82%
- -----------------------------------------------------------------------------
- --------------------
Average annual
- --------------------
Comparative Benchmarks
- -----------------------------------------------------------------------------
Average international funds+ 22.94% -9.35%
- -----------------------------------------------------------------------------
MSCI EAFE Index# 26.54% -8.22%
- -----------------------------------------------------------------------------
- --------------------
Average annual
with sales charge**
- --------------------
- -----------------------------------------------------------------------------
A 3.28% -0.35%
- -----------------------------------------------------------------------------
- --------------------
Cumulative
without sales charge
- --------------------
- -----------------------------------------------------------------------------
A 9.58% 5.08%
- -----------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations,
December 29, 2000, through September 30, 2003. Index information is from
January 2, 2001.
** Takes into account the maximum sales charge of 5.75%.
+ Source: Lipper Inc., an independent firm that reports mutual fund
performance.
# Source: Standard & Poor's Micropal, Inc.
INDEX DEFINITION
MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EAFE (EUROPE, AUSTRALASIA, FAR EAST)
INDEX -- A commonly used measure of the international stock market.
It is not possible to invest directly in an index.
NOTES TO PERFORMANCE SUMMARY
Class A shares results, including sales charge, reflect the deduction of the
maximum 5.75% sales charge. Performance results reflect any applicable subsidies
and waivers in effect during the periods shown; without these, the results would
have been less favorable. See the prospectus and financial statements for
details. All results are historical and include the reinvestment of any
dividends and capital gains distributions.
INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND SHARES, WHEN REDEEMED,
MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS, AND THE PERFORMANCE SHOWN ABOVE DOES NOT REFLECT
THE DEDUCTION OF TAXES, IF ANY, THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE, AND MORE
RECENT RETURNS MAY BE DIFFERENT FROM THOSE SHOWN. VISIT WWW.MFS.COM FOR MORE
CURRENT PERFORMANCE RESULTS.
KEY RISK CONSIDERATIONS
Investments in foreign and/or emerging markets securities may be unfavorably
affected by interest rates, currency exchange rates, economic, and political
conditions.
Investments in high yield or lower-rated securities may provide greater returns
but are subject to greater-than-average risk.
Because the portfolio invests in a limited number of companies, a change in one
security's value may have a more significant effect on the portfolio's value.
The portfolio utilizes short sales as an investment technique and will suffer a
loss if it sells a security short and the value of that security rises.
These risks may increase share price volatility. Please see the prospectus for
further information regarding these and other risk considerations.
This report is prepared for the general information of shareholders. It is
authorized for distribution to prospective investors only when preceded or
accompanied by a current prospectus.
- -----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - 9/30/03
- -----------------------------------------------------------------------------------------------------
The Portfolio of Investments is a complete list of all securities owned by your fund.
It is categorized by broad-based asset classes.
Stocks - 78.3%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - 77.6%
- -----------------------------------------------------------------------------------------------------
Australia - 1.5%
- -----------------------------------------------------------------------------------------------------
Australia & New Zealand Banking Group, Ltd., ADR (Banks &
Credit Companies) 260 $15,821
- -----------------------------------------------------------------------------------------------------
News Corp., Ltd., ADR (Broadcast & Cable TV)# 315 10,332
- -----------------------------------------------------------------------------------------------------
$26,153
- -----------------------------------------------------------------------------------------------------
Belgium - 1.0%
- -----------------------------------------------------------------------------------------------------
Fortis, ADR (Banks & Credit Companies)# 980 $16,651
- -----------------------------------------------------------------------------------------------------
Canada - 1.7%
- -----------------------------------------------------------------------------------------------------
Molson, Inc. (Alcoholic Beverages) 560 $13,808
- -----------------------------------------------------------------------------------------------------
Talisman Energy, Inc. (Energy - Independent) 310 14,707
- -----------------------------------------------------------------------------------------------------
$28,515
- -----------------------------------------------------------------------------------------------------
China - 0.8%
- -----------------------------------------------------------------------------------------------------
Huaneng Power International, Inc., ADR (Utilities -
Electric Power) 250 $13,675
- -----------------------------------------------------------------------------------------------------
Denmark - 1.0%
- -----------------------------------------------------------------------------------------------------
Danske Bank AS, ADR (Banks & Credit Companies) 920 $17,531
- -----------------------------------------------------------------------------------------------------
France - 6.4%
- -----------------------------------------------------------------------------------------------------
AXA, ADR (Insurance) 750 $12,742
- -----------------------------------------------------------------------------------------------------
BNP Paribas, ADR (Banks & Credit Companies) 560 13,804
- -----------------------------------------------------------------------------------------------------
France Telecom S.A., ADR (Telephone Services)* 850 19,754
- -----------------------------------------------------------------------------------------------------
L'Air Liquide S.A., ADR (Specialty Chemicals) 550 15,539
- -----------------------------------------------------------------------------------------------------
Sanofi-Synthelabo S.A. (Pharmaceuticals) 320 19,463
- -----------------------------------------------------------------------------------------------------
Total S.A., ADR (Energy - Integrated)# 396 30,017
- -----------------------------------------------------------------------------------------------------
$111,319
- -----------------------------------------------------------------------------------------------------
Germany - 2.6%
- -----------------------------------------------------------------------------------------------------
Bayerische Motoren Werke AG (Automotive) 910 $34,407
- -----------------------------------------------------------------------------------------------------
Stada Arzneimittel AG (Pharmaceuticals) 200 10,720
- -----------------------------------------------------------------------------------------------------
$45,127
- -----------------------------------------------------------------------------------------------------
India - 3.5%
- -----------------------------------------------------------------------------------------------------
ICICI Bank, Ltd., ADR (Banks & Credit Companies)# 5,750 $60,720
- -----------------------------------------------------------------------------------------------------
Ireland - 0.6%
- -----------------------------------------------------------------------------------------------------
DEPFA Bank PLC (Banks & Credit Companies) 105 $10,195
- -----------------------------------------------------------------------------------------------------
Japan - 21.8%
- -----------------------------------------------------------------------------------------------------
Brother Industries, Ltd. (Electronics) 6,000 $59,130
- -----------------------------------------------------------------------------------------------------
Chugai Pharmaceutical Co., Ltd. (Pharmaceuticals) 1,000 12,503
- -----------------------------------------------------------------------------------------------------
Citizen Electronic Co., Ltd. (Electronics) 100 7,539
- -----------------------------------------------------------------------------------------------------
Credit Saison Co., Ltd. (Banks & Credit Companies) 700 14,639
- -----------------------------------------------------------------------------------------------------
Fujikura, Ltd. (Electrical Equipment) 3,000 13,140
- -----------------------------------------------------------------------------------------------------
Fujisawa Pharmaceutical Co., Ltd. (Pharmaceuticals) 1,000 22,798
- -----------------------------------------------------------------------------------------------------
Honda Motor Co., Ltd., ADR (Automotive)# 1,000 20,160
- -----------------------------------------------------------------------------------------------------
Japan Telecom Holdings Co., Ltd., ADR (Telephone Services) 5,000 14,770
- -----------------------------------------------------------------------------------------------------
KDDI Corp. (Telephone Services) 3 15,240
- -----------------------------------------------------------------------------------------------------
Meiwa Estate Co., Ltd. (Real Estate) 900 $7,327
- -----------------------------------------------------------------------------------------------------
Mitsubishi Tokyo Financial Group, Inc. (Banks & Credit Companies) 2 12,655
- -----------------------------------------------------------------------------------------------------
NEC Electronics Corp. (Electrical Equipment) 100 6,848
- -----------------------------------------------------------------------------------------------------
Nippon Electric Glass Co., Ltd. (Electronics) 3,000 46,179
- -----------------------------------------------------------------------------------------------------
Nippon Oil Corp. (Energy - Independent) 2,000 8,832
- -----------------------------------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automotive) 7,000 75,708
- -----------------------------------------------------------------------------------------------------
Stanley Electric Co., Ltd. (Electronics) 1,000 17,951
- -----------------------------------------------------------------------------------------------------
Tokyo Gas Co., Ltd. (Natural Gas Distribution) 6,000 19,979
- -----------------------------------------------------------------------------------------------------
$375,398
- -----------------------------------------------------------------------------------------------------
Netherlands - 1.3%
- -----------------------------------------------------------------------------------------------------
Koninklijke (Royal) KPN N.V., ADR (Telephone Services)*# 1,250 $9,375
- -----------------------------------------------------------------------------------------------------
VNU N.V., ADR (Printing & Publishing)# 463 13,571
- -----------------------------------------------------------------------------------------------------
$22,946
- -----------------------------------------------------------------------------------------------------
Singapore - 3.4%
- -----------------------------------------------------------------------------------------------------
Haw Par Corp., Ltd. (Electrical Equipment) 122 $302
- -----------------------------------------------------------------------------------------------------
Singapore Post, Ltd. (Trucking) 6,000 2,446
- -----------------------------------------------------------------------------------------------------
Singapore Telecommunications, Ltd., ADR (Telephone Services) 1,900 18,247
- -----------------------------------------------------------------------------------------------------
United Overseas Bank, Ltd. (Banks & Credit Companies) 3,000 23,247
- -----------------------------------------------------------------------------------------------------
United Overseas Bank, Ltd., ADR (Banks & Credit Companies)# 915 14,186
- -----------------------------------------------------------------------------------------------------
$58,428
- -----------------------------------------------------------------------------------------------------
South Africa - 1.0%
- -----------------------------------------------------------------------------------------------------
Impala Platinum Holdings, Ltd. (Precious Metals) 200 $16,710
- -----------------------------------------------------------------------------------------------------
Spain - 1.1%
- -----------------------------------------------------------------------------------------------------
Telefonica S.A., ADR (Telephone Services)# 537 $19,037
- -----------------------------------------------------------------------------------------------------
Sweden - 0.7%
- -----------------------------------------------------------------------------------------------------
Hennes & Mauritz AB (H&M) (Specialty Stores) 550 $12,458
- -----------------------------------------------------------------------------------------------------
Switzerland - 7.3%
- -----------------------------------------------------------------------------------------------------
Nestle S.A., ADR (Food & Non Alcoholic Beverages) 388 $22,365
- -----------------------------------------------------------------------------------------------------
Novartis AG, ADR (Pharmaceuticals)# 940 36,510
- -----------------------------------------------------------------------------------------------------
Syngenta AG, ADR (Chemicals)# 3,900 42,666
- -----------------------------------------------------------------------------------------------------
UBS AG (Banks & Credit Companies)# 430 24,179
- -----------------------------------------------------------------------------------------------------
$125,720
- -----------------------------------------------------------------------------------------------------
United Kingdom - 21.9%
- -----------------------------------------------------------------------------------------------------
AstraZeneca PLC, ADR (Pharmaceuticals) 870 $37,758
- -----------------------------------------------------------------------------------------------------
Aviva PLC (Insurance)* 1,850 14,361
- -----------------------------------------------------------------------------------------------------
Barclays PLC, ADR (Banks & Credit Companies) 450 13,950
- -----------------------------------------------------------------------------------------------------
BHP Billiton PLC, ADR (Metals & Mining)# 750 9,956
- -----------------------------------------------------------------------------------------------------
BP PLC, ADR (Energy - Integrated)# 600 25,260
- -----------------------------------------------------------------------------------------------------
British Sky Broadcasting Group PLC, ADR (Broadcast & Cable TV)*# 244 9,964
- -----------------------------------------------------------------------------------------------------
Carlton Communications PLC (Broadcast & Cable TV)* 2,800 7,517
- -----------------------------------------------------------------------------------------------------
Diageo PLC, ADR (Alcoholic Beverages)# 1,150 50,773
- -----------------------------------------------------------------------------------------------------
Kesa Electricals PLC (Specialty Stores)* 4,500 16,662
- -----------------------------------------------------------------------------------------------------
Kingfisher PLC, ADR (Specialty Stores) 1,300 11,245
- -----------------------------------------------------------------------------------------------------
Lonmin PLC, ADR (Precious Metals)# 2,184 33,854
- -----------------------------------------------------------------------------------------------------
Next PLC (General Merchandise) 850 $15,881
- -----------------------------------------------------------------------------------------------------
Reckitt Benckiser PLC (Consumer Goods & Services)* 710 14,280
- -----------------------------------------------------------------------------------------------------
Reed Elsevier PLC, ADR (Printing & Publishing)# 538 17,001
- -----------------------------------------------------------------------------------------------------
Royal Bank of Scotland Group PLC (Banks & Credit
Companies)* 1,573 40,005
- -----------------------------------------------------------------------------------------------------
Taylor Nelson Sofres PLC (Broadcast & Cable TV) 1,900 6,064
- -----------------------------------------------------------------------------------------------------
Vodafone Group PLC, ADR (Wireless Communications)# 2,520 51,030
- -----------------------------------------------------------------------------------------------------
Yell Group PLC (Broadcast & Cable TV)* 450 2,259
- -----------------------------------------------------------------------------------------------------
$377,820
- -----------------------------------------------------------------------------------------------------
Total Foreign Stocks $1,338,403
- -----------------------------------------------------------------------------------------------------
U.S. Stocks - 0.7%
- -----------------------------------------------------------------------------------------------------
Manpower, Inc. (Business Services) 350 $12,985
- -----------------------------------------------------------------------------------------------------
Total Stocks (Identified Cost, $1,162,316) $1,351,388
- -----------------------------------------------------------------------------------------------------
Preferred Stock - 1.8%
- -----------------------------------------------------------------------------------------------------
Fresenius Medical Care AG (Medical & Health Technology &
Services) 310 $13,726
- -----------------------------------------------------------------------------------------------------
Porsche AG (Automotive) 41 17,266
- -----------------------------------------------------------------------------------------------------
Total Preferred Stock (Identified Cost, $32,494) $30,992
- -----------------------------------------------------------------------------------------------------
Warrants
- -----------------------------------------------------------------------------------------------------
Stada Arzneimittel AG (Biotechnology) 10/13/2003*
(Identified Cost, $395) 200 $448
- -----------------------------------------------------------------------------------------------------
Repurchase Agreement - 7.9%
- -----------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT
ISSUER (000 Omitted) $ VALUE
- -----------------------------------------------------------------------------------------------------
Merrill Lynch Repurchase Agreement, dated 09/30/03, due 10/ 01/03, total
to be received $136,004 (secured by various U.S. Treasury and Federal
Agency obligations in a jointly traded account), at Cost $136 $136,000
- -----------------------------------------------------------------------------------------------------
Total Investments (Identified Cost, $1,331,205) $1,518,828
- -----------------------------------------------------------------------------------------------------
Securities Sold Short - (16.6)%
- -----------------------------------------------------------------------------------------------------
ISSUER SHARES $ VALUE
- -----------------------------------------------------------------------------------------------------
Foreign Stocks - (16.6)%
- -----------------------------------------------------------------------------------------------------
Finland - (0.8)%
- -----------------------------------------------------------------------------------------------------
Stora Enso Oyj (Forest & Paper Products) (1,100) $(13,558
- -----------------------------------------------------------------------------------------------------
Germany - (3.2)%
- -----------------------------------------------------------------------------------------------------
Bayerische Hypo-und Vereinsbank AG (Banks & Credit Companies) (450) $(7,745)
- -----------------------------------------------------------------------------------------------------
DaimlerChrysler AG (Automotive) (800) (28,095)
- -----------------------------------------------------------------------------------------------------
Fresenius AG (Medical & Health Technology & Services) (180) (10,380)
- -----------------------------------------------------------------------------------------------------
Siemens AG (Conglomerates) (160) (9,534)
- -----------------------------------------------------------------------------------------------------
$(55,754)
- -----------------------------------------------------------------------------------------------------
Hong Kong - (0.7)%
- -----------------------------------------------------------------------------------------------------
Henderson Land Development Co., Ltd. (Real Estate) (1,000) $(4,171)
- -----------------------------------------------------------------------------------------------------
Sun Hung Kai Properties, Ltd. (Real Estate) (1,000) (8,102)
- -----------------------------------------------------------------------------------------------------
$(12,273)
- -----------------------------------------------------------------------------------------------------
Japan - (3.7)%
- -----------------------------------------------------------------------------------------------------
UFJ Holdings, Inc. (Banks & Credit Companies) (16) $(63,043)
- -----------------------------------------------------------------------------------------------------
Singapore - (2.2)%
- -----------------------------------------------------------------------------------------------------
Creative Technology, Ltd. (PC & Peripheral) (3,600) $(38,448)
- -----------------------------------------------------------------------------------------------------
Switzerland - (0.9)%
- -----------------------------------------------------------------------------------------------------
Ciba Specialty AG (Specialty Chemicals) (230) $(15,606)
- -----------------------------------------------------------------------------------------------------
United Kingdom - (5.1)%
- -----------------------------------------------------------------------------------------------------
Aggreko PLC (Machinery & Tools) (5,800) $(15,498)
- -----------------------------------------------------------------------------------------------------
Carphone Warehouse PLC (Specialty Stores) (8,200) (16,084)
- -----------------------------------------------------------------------------------------------------
Egg PLC (Banks & Credit Companies) (18,000) (38,598)
- -----------------------------------------------------------------------------------------------------
Granada PLC (Broadcast & Cable TV)* (5,300) (8,237)
- -----------------------------------------------------------------------------------------------------
HBOS PLC (Banks & Credit Companies)* (800) (9,149)
- -----------------------------------------------------------------------------------------------------
$(87,566)
- -----------------------------------------------------------------------------------------------------
Total Securities Sold Short (Proceeds Received, $(245,046)) $(286,248)
- -----------------------------------------------------------------------------------------------------
Other Assets, Less Liabilities - 28.6% 493,179
- -----------------------------------------------------------------------------------------------------
Net Assets - 100.0% $1,725,759
- -----------------------------------------------------------------------------------------------------
* Non-income producing security.
# Security or a portion of the security was pledged to cover collateral
requirements for securities sold short. At September 30, 2003, the value of
securities pledged for Vertex International Fund amounted to $395,565.
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES
- -------------------------------------------------------------------------------------------------------
This statement represents your fund's balance sheet, which details the assets
and liabilities composing the total value of your fund.
AT 9/30/03
ASSETS
Investments, at value (identified cost, $1,331,205) $1,518,828
- -------------------------------------------------------------------------------------------------------
Cash 250,875
- -------------------------------------------------------------------------------------------------------
Foreign currency, at value (identified cost, $486) 503
- -------------------------------------------------------------------------------------------------------
Deposits with brokers for securities sold short 245,046
- -------------------------------------------------------------------------------------------------------
Receivable for investments sold 47,232
- -------------------------------------------------------------------------------------------------------
Interest and dividends receivable 4,631
- -------------------------------------------------------------------------------------------------------
Total assets $2,067,115
- -------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for dividends on securities sold short $9,105
- -------------------------------------------------------------------------------------------------------
Securities sold short, at value (proceeds received, $245,046) 286,248
- -------------------------------------------------------------------------------------------------------
Payable for investments purchased 45,933
- -------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 70
- -------------------------------------------------------------------------------------------------------
Total liabilities $341,356
- -------------------------------------------------------------------------------------------------------
Net assets $1,725,759
- -------------------------------------------------------------------------------------------------------
NET ASSETS CONSIST OF
Paid-in capital $1,677,653
- -------------------------------------------------------------------------------------------------------
Unrealized appreciation on investments and translation of assets
and liabilities in foreign currencies 144,711
- -------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (96,566)
- -------------------------------------------------------------------------------------------------------
Accumulated net investment loss (39)
- -------------------------------------------------------------------------------------------------------
Total $ 1,725,759
- -------------------------------------------------------------------------------------------------------
Shares of beneficial interest outstanding 165,820
- -------------------------------------------------------------------------------------------------------
Class A shares
Net assets $1,725,759
- -------------------------------------------------------------------------------------------------------
Shares outstanding 165,820
- -------------------------------------------------------------------------------------------------------
Net asset value per share $10.41
- -------------------------------------------------------------------------------------------------------
Offering price per share (100/94.25X$10.41) $11.05
- -------------------------------------------------------------------------------------------------------
On sales of $50,000 or more, the offering price of Class A shares is reduced. A contingent deferred sales
charge may be imposed on redemptions of Class A shares.
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF OPERATIONS
- -------------------------------------------------------------------------------------------------------
This statement describes how much your fund received in investment income and paid in expenses. It also
describes any gains and/or losses generated by fund operations.
FOR YEAR ENDED 9/30/03
NET INVESTMENT INCOME
Income
- -------------------------------------------------------------------------------------------------------
Dividends $31,464
- -------------------------------------------------------------------------------------------------------
Interest 2,515
- -------------------------------------------------------------------------------------------------------
Foreign taxes withheld (3,376)
- -------------------------------------------------------------------------------------------------------
Total investment income $30,603
- -------------------------------------------------------------------------------------------------------
Expenses
- -------------------------------------------------------------------------------------------------------
Shareholder servicing agent fee $1,631
- -------------------------------------------------------------------------------------------------------
Distribution and service fee (Class A) 5,736
- -------------------------------------------------------------------------------------------------------
Administrative fee 159
- -------------------------------------------------------------------------------------------------------
Auditing fees 24,856
- -------------------------------------------------------------------------------------------------------
Printing 11,082
- -------------------------------------------------------------------------------------------------------
Custodian fee 7,362
- -------------------------------------------------------------------------------------------------------
Legal fees 748
- -------------------------------------------------------------------------------------------------------
Postage 35
- -------------------------------------------------------------------------------------------------------
Dividend expense on securities sold short 6,683
- -------------------------------------------------------------------------------------------------------
Miscellaneous 11,313
- -------------------------------------------------------------------------------------------------------
Total expenses $69,605
- -------------------------------------------------------------------------------------------------------
Fees paid indirectly (33)
- -------------------------------------------------------------------------------------------------------
Reduction of expenses by investment adviser and distributor (38,462)
- -------------------------------------------------------------------------------------------------------
Net expenses $31,110
- -------------------------------------------------------------------------------------------------------
Net investment loss $(507)
- -------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain (loss) (identified cost basis)
- -------------------------------------------------------------------------------------------------------
Investment transactions $(70,164)
- -------------------------------------------------------------------------------------------------------
Securities sold short 61,174
- -------------------------------------------------------------------------------------------------------
Foreign currency transactions (160)
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency transactions $(9,150)
- -------------------------------------------------------------------------------------------------------
Change in unrealized appreciation (depreciation)
- -------------------------------------------------------------------------------------------------------
Investments $326,383
- -------------------------------------------------------------------------------------------------------
Securities sold short (175,764)
- -------------------------------------------------------------------------------------------------------
Translation of assets and liabilities in foreign currencies 9,347
- -------------------------------------------------------------------------------------------------------
Net unrealized gain on investments and foreign currency translation $159,966
- -------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments and foreign currency $150,816
- -------------------------------------------------------------------------------------------------------
Increase in net assets from operations $150,309
- -------------------------------------------------------------------------------------------------------
See notes to financial statements.
- -------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------------------------------
This statement describes the increases and/or decreases in net assets resulting from operations, any
distributions, and any shareholder transactions.
FOR YEARS ENDED 9/30 2003 2002
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $(507) $3,265
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments and foreign currency
transactions (9,150) (77,902)
- -------------------------------------------------------------------------------------------------------
Net unrealized gain (loss) on investments and foreign currency
translation 159,966 (100,229)
- ------------------------------------------------------------------ ------------ ----------------
Increase (decrease) in net assets from operations $150,309 $(174,866)
- ------------------------------------------------------------------ ------------ ----------------
Distributions declared to shareholders from net investment
income (Class A) $-- $(16,933)
- ------------------------------------------------------------------ ------------ ----------------
Net increase in net assets from fund share transactions $1,547 $67,647
- ------------------------------------------------------------------ ------------ ----------------
Total increase (decrease) in net assets $151,856 $(124,152)
- ------------------------------------------------------------------ ------------ ----------------
NET ASSETS
At beginning of period $1,573,903 $1,698,055
- -------------------------------------------------------------------------------------------------------
At end of period (including accumulated net investment loss of
$39 and $0, respectively) $1,725,759 $1,573,903
- -------------------------------------------------------------------------------------------------------
See notes to financial statements.
- ----------------------------------------------------------------------------------------------------------------
FINANCIAL STATEMENTS FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------
The financial highlights table is intended to help you understand the fund's financial performance for the
period of the fund's operation. Certain information reflects financial results for a single fund share. The
total returns in the table represent the rate by which an investor would have earned (or lost) on an investment
in the fund (assuming reinvestment of all distributions). This information has been audited by the fund's
independent auditors, whose report, together with the fund's financial statements, are included in this report.
FOR YEARS ENDED 9/30
PERIOD ENDED
CLASS A 2003 2002 9/30/2001*
Net asset value, beginning of period $9.50 $10.54 $10.00
- ----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS#
Net investment income (loss)(S) $(0.00)+++ $0.02 $0.08
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency 0.91 (0.97) 0.46
- ---------------------------------------------------------------------- ----------- ----------------
Total from investment operations $0.91 $(0.95) $0.54
- ---------------------------------------------------------------------- ----------- ----------------
Less distributions declared to shareholders from net
investment income $-- $(0.09) $--
- ---------------------------------------------------------------------- ----------- ----------------
Net asset value, end of period $10.41 $9.50 $10.54
- ---------------------------------------------------------------------- ----------- ----------------
Total return (%)(+) 9.58 (8.93) 5.30++
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS) AND SUPPLEMENTAL DATA(S):
Expenses##(++) 1.91 2.32 2.48+
- ----------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.03) 0.17 1.09+
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 92 216 229
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of period (000 Omitted) $1,726 $1,574 $1,698
- ----------------------------------------------------------------------------------------------------------------
(S) Subject to reimbursement by the fund, the investment adviser agreed to maintain the expenses of the fund,
exclusive of management and distribution and service fees at not more than 1.50% of average daily net
assets. In addition, the investment adviser and the distributor voluntarily waived their fees for the
periods indicated. To the extent actual expenses were over this limitation and the waivers had not been in
place, the net investment loss and ratios would have been:
Net investment loss $(0.23) $(0.40) $(0.27)
- ----------------------------------------------------------------------------------------------------------------
RATIOS (%) (TO AVERAGE NET ASSETS)
Expenses## 4.26 6.51 7.18+
- ----------------------------------------------------------------------------------------------------------------
Net investment loss (2.38) (4.02) (3.61)+
- ----------------------------------------------------------------------------------------------------------------
* For the period from the commencement of the fund's investment operations, December 29, 2000, through September
30, 2001.
+ Annualized.
++ Not annualized.
+++ Per share amount was less than $0.01. #Per share data are based on average shares outstanding.
## Ratios do not reflect reductions from fees paid indirectly.
(+) Total returns for Class A shares do not include the applicable sales charge. If the charge had been
included, the results would have been lower.
(++) Excluding dividend expense on securities sold short and interest expense, the ratio of expenses to average
net assets was 1.50%, 1.51% and 1.54% for the years ended September 30, 2003 and September 30, 2002, and
the period ended September 30, 2001, respectively.
See notes to financial statements.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) BUSINESS AND ORGANIZATION
Vertex International Fund (the fund) is a non-diversified series of MFS Series
Trust XI (the trust). The trust is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company.
(2) SIGNIFICANT ACCOUNTING POLICIES
GENERAL - The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The fund utilizes short sales as an investment technique and may suffer a loss
if it sells a security short and the value of the security rises.
The fund can invest up to 35% of its portfolio in high-yield securities rated
below investment grade. Investments in high-yield securities involve greater
degrees of credit and market risk than investments in higher-rated securities
and tend to be more sensitive to economic conditions.
The fund can invest in foreign securities. Investments in foreign securities are
vulnerable to the effects of changes in the relative values of the local
currency and the U.S. dollar and to the effects of changes in each country's
legal, political, and economic environment.
INVESTMENT VALUATIONS - Equity securities in the fund's portfolio for which
market quotations are available are valued at the last sale or official closing
price on the primary market or exchange on which they are primarily traded or at
the last quoted bid price for securities in which there were no sales during the
day. If no sales are reported, as is the case for most securities traded over
the counter, securities are valued on the basis of quotations obtained from
brokers and dealers or on the basis of valuations furnished by a pricing
service. Short-term obligations in the fund's portfolio are valued at amortized
cost, which constitutes fair value as determined by the Board of Trustees.
Short-term obligations with a remaining maturity in excess of 60 days will be
valued upon dealer-supplied valuations. Portfolio investments for which market
quotations are not readily available, or whose values have been materially
affected by events occurring after the close of their primary markets, are
valued at fair value as determined in good faith by or at the direction of the
Board of Trustees.
REPURCHASE AGREEMENTS - The fund may enter into repurchase agreements with
institutions that the fund's investment adviser has determined are creditworthy.
Each repurchase agreement is recorded at cost. The fund requires that the
securities collateral in a repurchase transaction be transferred to the
custodian in a manner sufficient to enable the fund to obtain those securities
in the event of a default under the repurchase agreement. The fund monitors, on
a daily basis, the value of the collateral to ensure that its value, including
accrued interest, is greater than amounts owed to the fund under each such
repurchase agreement. The fund, along with other affiliated entities of
Massachusetts Financial Services Company (MFS), may utilize a joint trading
account for the purpose of entering into one or more repurchase agreements.
FOREIGN CURRENCY TRANSLATION - Investment valuations, other assets, and
liabilities initially expressed in foreign currencies are converted each
business day into U.S. dollars based upon current exchange rates. Purchases and
sales of foreign investments, income, and expenses are converted into U.S.
dollars based upon currency exchange rates prevailing on the respective dates of
such transactions. Gains and losses attributable to foreign currency exchange
rates on sales of securities are recorded for financial statement purposes as
net realized gains and losses on investments. Gains and losses attributable to
foreign exchange rate movements on income and expenses are recorded for
financial statement purposes as foreign currency transaction gains and losses.
That portion of both realized and unrealized gains and losses on investments
that results from fluctuations in foreign currency exchange rates is not
separately disclosed.
SHORT SALES - The fund may enter into short sales. A short sale transaction
involves selling a security which the fund does not own with the intent of
purchasing it later at a lower price. The fund will realize a gain if the
security price decreases and a loss if the security price increases between the
date of the short sale and the date on which the fund must replace the borrowed
security. Losses from short sales can exceed the proceeds of the security sold;
and they can also exceed the potential loss from an ordinary buy and sell
transaction. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of the premium, dividends, or interest the fund
may be required to pay in connection with a short sale. Whenever the fund
engages in short sales, its custodian segregates cash or marketable securities
in an amount that, when combined with the amount of proceeds from the short sale
deposited with the broker, at least equals the current market value of the
security sold short.
INVESTMENT TRANSACTIONS AND INCOME - Investment transactions are recorded on the
trade date. Interest income is recorded on the accrual basis. All premium and
discount is amortized or accreted for financial statement purposes in accordance
with accounting principles generally accepted in the United States of America.
All discount is accreted for tax reporting purposes as required by federal
income tax regulations. Dividends received in cash are recorded on the
ex-dividend date. Some securities may be purchased on a "when-issued" or
"forward delivery" basis, which means that the securities will be delivered to
the fund at a future date, usually beyond customary settlement time.
FEES PAID INDIRECTLY - The fund's custody fee is reduced according to an
arrangement that measures the value of cash deposited with the custodian by the
fund. This amount is shown as a reduction of total expenses on the Statement of
Operations.
TAX MATTERS AND DISTRIBUTIONS - The fund's policy is to comply with the
provisions of the Internal Revenue Code (the Code) applicable to regulated
investment companies and to distribute to shareholders all of its net taxable
income, including any net realized gain on investments. Accordingly, no
provision for federal income or excise tax is provided.
Distributions to shareholders are recorded on the ex-dividend date. The fund
distinguishes between distributions on a tax basis and a financial reporting
basis and only distributions in excess of tax basis earnings and profits are
reported in the financial statements as distributions from paid-in capital.
Differences in the recognition or classification of income between the financial
statements and tax earnings and profits, which result in temporary
over-distributions for financial statement purposes, are classified as
distributions in excess of net investment income or net realized gains. Common
types of book and tax differences that could occur include differences in
accounting for currency transactions, derivatives, wash sales and capital
losses.
The tax character of distributions declared for the years ended September 30,
2003 and September 30, 2002 were as follows:
9/30/03 9/30/02
Distributions declared from
- ------------------------------------------------------------------------------
Ordinary income $-- $16,933
- ------------------------------------------------------------------------------
Long-term capital gain -- --
- ------------------------------------------------------------------------------
Total distributions declared $-- $16,933
- ------------------------------------------------------------------------------
During the year ended September 30, 2003, accumulated net investment loss
decreased by $468, accumulated net realized loss on investments and foreign
currency transactions decreased by $160, and paid-in capital decreased by $628
due to differences between book and tax accounting for net investment losses and
foreign currency transactions. This change had no effect on the net assets or
net asset value per share. At September 30, 2003, accumulated net investment
loss and realized loss on investments and foreign currency transactions under
book accounting were different from tax accounting due to temporary differences
in accounting for currency, wash sales and capital losses.
As of September 30, 2003, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Capital loss carryforward $(76,206)
----------------------------------------------
Post-October capital loss deferral (12,077)
----------------------------------------------
Unrealized appreciation 136,389
----------------------------------------------
Post-October capital and currency loss deferrals represent losses realized
during the current fiscal year, but recognized for tax purposes in the next
fiscal year.
For federal income tax purposes, the capital loss carryforward may be applied
against any net taxable realized gains of each succeeding year until the earlier
of its utilization or expiration on:
EXPIRATION DATE
September 30, 2009 $(10,445)
----------------------------------------------
September 30, 2010 (21,868)
----------------------------------------------
September 30, 2011 (43,893)
----------------------------------------------
Total $(76,206)
----------------------------------------------
(3) TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISER - The fund has an investment advisory agreement with Vertex
Investment Management, Inc. (Vertex), a wholly owned subsidiary of Massachusetts
Financial Services Company (MFS), to provide overall investment advisory and
administrative services, and general office facilities. The fund pays Vertex, at
the end of each month, a base management fee of 2.00% per annum of the fund's
average daily net assets (computed over the course of that month), adjusted
upward or downward by 0.20% of such fund's average daily net assets (computed
over the course of the Performance Period, defined below) for each full
percentage point that the fund's performance during the prior 12 months (the
"Performance Period") exceeds or lags the performance of the Morgan Stanley
Capital International (MSCI) EAFE (Europe, Australasia and Far East) Index for
the Vertex International Fund. The maximum adjustment (up or down) for the
fund's fiscal year shall not exceed 2.00%, so that the minimum and maximum
management fee paid by the fund during any fiscal year will be 0.00% and 4.00%,
respectively. The effective advisory fee for the year ended September 30, 2003
was 0%. The investment adviser has voluntarily agreed to waive its fee, which is
shown as a reduction of total expenses in the Statement of Operations.
The fund has a temporary expense reimbursement agreement whereby Vertex has
voluntarily agreed to pay all of the fund's operating expenses, exclusive of
management, distribution and service fees. The fund in turn will pay Vertex an
expense reimbursement fee not greater than 1.50% of average daily net assets. To
the extent that the expense reimbursement fee exceeds the fund's actual
expenses, the excess will be applied to amounts paid by Vertex in prior years.
At September 30, 2003, aggregate unreimbursed expenses amounted to $71,954.
The fund pays compensation to the Independent Trustees ("Trustees") in the form
of both a retainer and attendance fees, and pays no compensation directly to its
Trustees who are officers of the investment adviser, or to officers of the fund,
all of whom receive remuneration for their services to the fund from Vertex.
Certain officers and Trustees of the fund are officers or directors of Vertex,
MFS Fund Distributors, Inc. (MFD), and MFS Service Center, Inc. (MFSC).
ADMINISTRATOR - The fund has an administrative services agreement with MFS to
provide the fund with certain financial, legal, shareholder communications,
compliance, and other administrative services. As a partial reimbursement for
the cost of providing these services, the fund pays MFS an administrative fee
not to exceed the following annual percentage rates of the fund's average daily
net assets:
First $2 billion 0.0175%
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Next $2.5 billion 0.0130%
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Next $2.5 billion 0.0005%
----------------------------------------------
In excess of $7 billion 0.0000%
----------------------------------------------
DISTRIBUTOR - MFD, a wholly owned subsidiary of MFS, as distributor, did not
receive any sales charges for the year ended September 30, 2003, as its portion
of the sales charge on sales of Class A shares of the fund.
The Trustees have adopted a distribution plan for Class A shares pursuant to
Rule 12b-1 of the Investment Company Act of 1940 as follows:
The fund's distribution plan provides that the fund will pay MFD an annual
percentage of its average daily net assets attributable to certain share classes
in order that MFD may pay expenses on behalf of the fund related to the
distribution and servicing of its shares. These expenses include a service fee
paid to each securities dealer that enters into a sales agreement with MFD based
on the average daily net assets of accounts attributable to such dealers. These
fees are calculated based on each class' average daily net assets. The maximum
distribution and service fees for each class of shares are as follows:
CLASS A
Distribution Fee 0.10%
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Service Fee 0.25%
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Total Distribution Plan 0.35%
----------------------------------------------
The fund's payment of the 10% per annum Class A distribution fee and the 0.25%
per annum Class A service fee is currently being waived by MFD.
Certain Class A shares are subject to a contingent deferred sales charge in the
event of a shareholder redemption within 12 months following the purchase. MFD
receives all contingent deferred sales charges. There were no contingent
deferred sales charges imposed during the year ended September 30, 2003.
SHAREHOLDER SERVICING AGENT - MFSC, a wholly owned subsidiary of MFS, earns a
fee for its services as shareholder servicing agent. The fee is calculated as a
percentage of the fund's average daily net assets at an annual rate of 0.11%.
Prior to April 1, 2003, the fee was 0.10% of the fund's average daily net
assets.
(4) PORTFOLIO SECURITIES
Purchases and sales of investments, other than U.S. government securities,
purchased option transactions, and short-term obligations, aggregated $1,167,585
and $1,281,379, respectively.
The cost and unrealized appreciation and depreciation in the value of the
investments owned by the fund, as computed on a federal income tax basis, are as
follows:
Aggregate cost $1,339,527
----------------------------------------------
Gross unrealized appreciation $208,138
----------------------------------------------
Gross unrealized depreciation (28,837)
----------------------------------------------
Net unrealized appreciation $179,301
----------------------------------------------
(5) SHARES OF BENEFICIAL INTEREST
The fund's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest. Transactions in
fund shares were as follows:
Year ended 9/30/03 Year ended 9/30/02
CLASS A SHARES SHARES AMOUNT SHARES AMOUNT
Shares sold 4,452 $42,901 45,775 $463,596
- --------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions -- -- 1,776 16,931
- --------------------------------------------------------------------------------
Shares reacquired (4,287) (41,354) (43,011) (412,880)
- --------------------------------------------------------------------------------
Net increase 165 $1,547 4,540 $67,647
- --------------------------------------------------------------------------------
(6) LINE OF CREDIT
The Vertex International Fund participates in a $1 million committed secured
line of credit provided by State Street Bank and Trust Company under a line of
credit agreement. The fund may borrow up to 50% of its net assets to invest in
portfolio securities or for liquidity or defensive purposes. The loan is secured
by assets of the fund. Interest is charged to the fund based on its borrowings,
at a rate equal to the Overnight Federal Funds Rate plus 0.60%. In addition, a
commitment fee based on the daily unused portion of the committed line of credit
is charged to the fund at a rate of 0.09% per annum. The fund had no borrowings
during the period.
(7) SUBSEQUENT EVENT
The Board of Trustees which oversees the Vertex International Fund decided at
its meeting on November 20, 2003 to terminate the fund effective December 5,
2003.
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Trustees of MFS Series Trust XI and Shareholders of Vertex International
Fund:
We have audited the accompanying statement of assets and liabilities of Vertex
International Fund (the Fund) (one of the portfolios constituting MFS Series
Trust XI), including the portfolio of investments, as of September 30, 2003, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned at September 30, 2003, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Vertex
International Fund at September 30, 2003, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and its financial highlights for each of the periods indicated
therein, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
Boston, Massachusetts
November 7, 2003
- -------------------------------------------------------------------------------
FEDERAL TAX INFORMATION (Unaudited)
- -------------------------------------------------------------------------------
In January 2004, shareholders will be mailed a Form 1099-DIV reporting the
federal tax status of all distributions paid during the calendar year 2003.
The fund has the option to use equalization, which is a tax basis dividends paid
deduction from earnings and profits distributed to shareholders upon redemption
of shares.
- -----------------------------------------------------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- -----------------------------------------------------------------------------------------------------------------------------
The following tables present certain information regarding the Trustees and officers of MFS Series Trust XI, of which the
fund is a series, including their principal occupations, which, unless specific dates are shown, are of more than five years'
duration, although the titles may not have been the same throughout.
Name, Age, Position with the Trust, Principal Occupation, and Other Directorships(1)
INTERESTED TRUSTEES
JEFFREY L. SHAMES(2) (born 06/02/55) Chairman ABBY M. O'NEILL (born 04/27/28) Trustee
Massachusetts Financial Services Company, Chairman Private investor; Rockefeller Financial Services, Inc.
(investment advisers), Chairman and Chief
JOHN W. BALLEN(2) (born 09/12/59) Trustee and President Executive Officer
Massachusetts Financial Services Company, Chief Executive
Officer and Director LAWRENCE T. PERERA (born 06/23/35) Trustee
Hemenway & Barnes (attorneys), Partner
KEVIN R. PARKE(2) (born 12/14/59) Trustee
Massachusetts Financial Services Company, President, Chief WILLIAM J. POORVU (born 04/10/35) Trustee
Investment Officer and Director Private investor; Harvard University Graduate
School of Business Administration, Class of
1961 Adjunct Professor in Entrepreneurship
INDEPENDENT TRUSTEES Emeritus; CBL & Associates Properties, Inc.
(real estate investment trust), Director
LAWRENCE H. COHN, M.D. (born 03/11/37) Trustee
Brigham and Women's Hospital, Chief of Cardiac Surgery; J. DALE SHERRATT (born 09/23/38) Trustee
Harvard Medical School, Professor of Surgery Insight Resources, Inc. (acquisition planning
specialists), President; Wellfleet Investments
WILLIAM R. GUTOW (born 09/27/41) Trustee (investor in health care companies), Managing
Private investor and real estate consultant; Capitol General Partner (since 1993); Cambridge
Entertainment Management Company (video franchise), Vice Nutraceuticals (professional nutritional
Chairman products), Chief Executive Officer
(until May 2001)
J. ATWOOD IVES (born 05/01/36) Trustee
Private investor; KeySpan Corporation (energy related ELAINE R. SMITH (born 04/25/46) Trustee
services), Director; Eastern Enterprises (diversified Independent health care industry consultant
services company), Chairman, Trustee and Chief Executive
Officer (until November 2000) WARD SMITH (born 09/13/30) Trustee
Private investor
OFFICERS
JOHN W. BALLEN (born 09/12/59) Trustee and President ROBERT R. FLAHERTY (born 09/18/63) Assistant Treasurer
Massachusetts Financial Services Company, Chief Executive Massachusetts Financial Services Company, Vice President (since
Officer and Director August 2000); UAM Fund Services, Senior Vice President (prior to
August 2000)
JAMES R. BORDEWICK, JR. (born 03/06/59) Assistant
Secretary and Assistant Clerk RICHARD M. HISEY (born 08/29/58) Treasurer
Massachusetts Financial Services Company, Senior Vice Massachusetts Financial Services Company,
President and Associate General Counsel Senior Vice President (since July 2002); The
Bank of New York, Senior Vice President
STEPHEN E. CAVAN (born 11/06/53) Secretary and Clerk (September 2000 to July 2002); Lexington Global
Massachusetts Financial Services Company, Senior Vice Asset Managers, Inc., Executive Vice President
President, General Counsel and Secretary and Chief Financial Officer (prior to September
2000); Lexington Funds, Treasurer (prior to
STEPHANIE A. DESISTO (born 10/01/53) Assistant Treasurer September 2000)
Massachusetts Financial Services Company, Vice President
(since April 2003); Brown Brothers Harriman & Co., Senior ELLEN MOYNIHAN (born 11/13/57) Assistant
Vice President (November 2002 to April 2003); ING Groep Treasurer
N.V./Aeltus Investment Management, Senior Vice President Massachusetts Financial Services Company, Vice
(prior to November 2002) President
JAMES O. YOST (born 06/12/60) Assistant Treasurer
Massachusetts Financial Services Company, Senior Vice President
The Trust does not hold annual shareholder meetings for the purpose of electing Trustees, and Trustees are not elected for
fixed terms. This means that each Trustee will be elected to hold office until his or her successor is chosen and qualified
or until his or her earlier death, resignation, retirement or removal. Each officer will hold office until his or her
successor is chosen and qualified, or until he or she retires, resigns or is removed from office.
Messrs. Shames and Gutow have served in their capacity as Trustee of the Trust continuously since originally elected or
appointed. Messrs. Ballen, Cohn, Ives, Perera, Poorvu, Sherratt and Smith, and Mses. O'Neill and Smith were elected by
shareholders and have served as Trustees of the Trust since January 1, 2002. Mr. Parke has served as a Trustee of the Trust
since January 1, 2002.
Each of the Trust's Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is
the investment adviser or distributor and, in the case of the officers, with certain affiliates of MFS. Each Trustee serves
as a board member of 110 funds within the MFS Family of Funds.
The Statement of Additional Information contains further information about the Trustees and is available without charge upon
request, by calling 1-800-225-2606.
(1) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public
companies").
(2) "Interested person" of MFS within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act) which
is the principal federal law governing investment companies like the Trust. The address of MFS is 500 Boylston Street,
Boston, Massachusetts 02116.
Trustees and Officers - continued
INVESTMENT ADVISER
Vertex Investment Management, Inc.,
a wholly owned subsidiary of
Massachusetts Financial Services Company
500 Boylston Street
Boston, MA 02116-3741
DISTRIBUTOR
MFS Fund Distributors, Inc.
500 Boylston Street
Boston, MA 02116-3741
PORTFOLIO MANAGER
David R. Mannheim(1)
CUSTODIAN
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, MA 02116
(1) Vertex Investment Management
VERTEX(SM) INTERNATIONAL FUND
Vertex Investment Management, Inc.
500 Boylston Street
Boston, MA 02116-3741
(C)2003 Vertex Investment Management(R)
Vertex investment products are offered through MFS Fund Distributors Inc.,
500 Boylston Street, Boston, MA 02116.
VXI-ANN 11/03 260
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act and as defined in the instructions to Form N-CSR that applies
to the Registrant's principal executive officer and principal financial and
accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Messrs. J. Atwood Ives and Ward Smith, members of the Audit Committee, have been
determined by the Board of Trustees in their reasonable business judgment to
meet the definition of "audit committee financial expert" as such term is
defined in the instructions to Form N-CSR. In addition, Messrs. Ives and Smith
are both "independent" members of the Audit Committee as defined in the
instructions to Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time. Applicable for annual reports filed for the first
fiscal year ending after December 15, 2003.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
If applicable, not applicable at this time. Applicable for annual reports
covering periods ending on or after the compliance date for the listing
standards applicable to the particular issuer. Listed issuers must be in
compliance with the new listing rules by the earlier of the registrant's first
annual shareholders meeting after January 15, 2004 or October 31, 2004.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Applicable for annual reports filed on or after July 1, 2003.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) Based upon their evaluation of the registrant's disclosure controls and
procedures as conducted within 90 days of the filing date of this Form
N-CSR, the registrant's principal financial officer and principal executive
officer have concluded that those disclosure controls and procedures provide
reasonable assurance that the material information required to be disclosed
by the registrant on this report is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no changes in the registrant's internal controls over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the registrant's last fiscal half-year (the registrant's second fiscal
half-year in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control
over financial reporting.
ITEM 10. EXHIBITS.
(a) File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends
to satisfy the Item 2 requirements through filing of an exhibit: Code of
Ethics attached hereto.
(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2): Attached hereto.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the Act (17 CFR
270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14 under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18
of the United States Code (18 U.S.C. 1350) as an exhibit. A certification
furnished pursuant to this paragraph will not be deemed "filed" for the
purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise
subject to the liability of that section. Such certification will not be
deemed to be incorporated by reference into any filing under the Securities
Act of 1933 or the Exchange Act, except to the extent that the registrant
specifically incorporates it by reference: Attached hereto
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) MFS SERIES TRUST XI
-------------------------------------------------------------------
By (Signature and Title)* /s/ JOHN W. BALLEN
-----------------------------------------------------
John W. Ballen, President
Date: November 21, 2003
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ JOHN W. BALLEN
------------------------------------------------------
John W. Ballen, President
(Principal Executive Officer)
Date: November 21, 2003
------------------
By (Signature and Title)* /s/ RICHARD M. HISEY
------------------------------------------------------
Richard M. Hisey, Treasurer
(Principal Financial Officer and Accounting Officer)
Date: November 21, 2003
------------------
* Print name and title of each signing officer under his or her signature.